Supplementary Budget Estimates, 18 October 2016, Parliament House, Canberra
Statement by David Neal, Managing Director of the Future Fund, to the Senate Finance and Public Administration Committee
In September we released our end of year update on the performance and positioning of the five funds for which the Board is responsible and I would like to provide a short summary of the key points.
As at 30 June 2016, the Future Fund had grown to $122.8 billion. Originally funded with contributions of $60.5 billion, investment returns have added over $62 billion to the value of the Fund.
The Board considers returns over 10 year rolling periods as a suitable performance measure for the Future Fund given its long-term investment mandate. As we were set up in 2006, this was the first time we were able to report a 10 year return and I am pleased to confirm that the 10 year return was 7.7% per annum, exceeding the benchmark target return of 6.9% per annum.
The Future Fund generated returns of 11.4%, 10.2% and 10.7% per annum over 3, 5 and 7 year periods to 30 June 2016.
Returns over the one year to 30 June were more subdued at 4.8%.
We have been highlighting for some time that asset prices have been driven up by record low interest rates and that prospective returns will likely be lower than in recent years.
We have also been conscious of the risks across markets as central banks adjust their policy settings and as policy makers attempt to generate sustainable growth. This outlook also means greater volatility.
We have been positioning the portfolio for this environment, consistent with our investment strategy, and maintaining a generally lower level of risk in the portfolio.
That noted, in September we were pleased to secure an investment in the Port of Melbourne as part of a broader Consortium. Once that transaction closes, the Future Fund will have a 20% stake in the Port of Melbourne to add to our significant existing Australian infrastructure investments in Perth Airport and Melbourne and Launceston Airports. Australian infrastructure investments will then make up around half of our global infrastructure portfolio.
At the end of June the DisabilityCare Australia Fund, Building Australia Fund and Education Investment Fund stood at $6.1 billion, $3.7 billion and $3.7 billion respectively. We have continued to invest these funds in accordance with their low risk mandates.
We received contributions into the Medical Research Future Fund in the last quarter of 2015 and have begun investing that Fund in line with its mandate. The Medical Research Future Fund stood at $3.2 billion at 30 June 2016.
In summary, performance has been strong and the Future Fund Board and management team are focused on prudently managing the $140 billion in its care.