Statement by David Neal, Managing Director of the Future Fund, to the Senate Finance and Public Administration Committee
Additional Estimates, 24 February 2015, Parliament House, Canberra
Earlier this month we released our portfolio update for the period to 31 December 2014. I would like to briefly summarise that update and provide the Committee with an overview of the Fund’s performance and progress.
The Fund has grown to just over $109 billion. The investment return since the Fund was established in 2006 is 7.6% per annum, while the baseline target return set by our Investment Mandate was 7.2% per annum. In dollar terms this represents the addition of $48.7 billion to the original contributions valued at $60.5 billion.
Over the last year our emphasis on diversification has delivered strongly. The private equity, property and infrastructure programs in particular performed extremely well, significantly outperforming listed markets. The decision to increase our US dollar exposure also contributed to the strong calendar year return.
We have a long-term mandate and are pleased that the Fund’s one, three, five and seven year returns have exceeded our benchmark. The portfolio has operated as intended generating good returns when markets are stronger and having some protection in weaker times. This has resulted in a less volatile return profile.
A number of economic, political and geopolitical issues continue to present challenges to investors. In recent times we have seen significant movements in the prices of oil, iron ore and commodities and across equity, debt and currency markets. Continued volatility is likely.
While we continue to have significant exposure to risk assets, in this environment we have, at the margin, taken some risk out of the portfolio. This reflects the considerable uncertainty in global markets together with our view that prospective returns will be lower than investors have experienced in recent years. We will remain disciplined in ensuring that the portfolio is rewarded appropriately for the risk taken.
We continue to manage the assets of the Nation-building Funds in accordance with their Investment Mandates. On 26 November 2014 we received the first contribution into the DisabilityCare Australia Fund and have begun investing those assets as well.
In summary we are pleased with the performance of the various funds but remain keenly focused on ensuring that we continue to balance the risk and return requirements of the relevant mandates as the investment environment develops.