Statement by David Neal, Chief Exectuive Officer of the Future Fund to the Senate Finance and Public Administration Committee
Supplementary Budget Estimates, 24 October 2017, Parliament House, Canberra.
On Friday 20 October we tabled our 2016-17 Annual Report in Parliament. The Report provides a comprehensive overview of the performance of our five public asset Funds and the operation of our organisation in the 2016-17 financial year.
We have made good progress in the pursuit of our objective to strengthen the Commonwealth’s long-term financial position. Since inception in May 2006 the Future Fund returned 7.8% pa against a benchmark target of 6.9% pa. This added $73bn to the original contributions of $60.5bn from government.
In 2016-17 the portfolio returned 8.7%, adding $10.7bn to the value of the Future Fund.
This morning we released our portfolio update to 30 September 2017.
The Future Fund stands at $134.5bn. It has exceeded its target return over all long-term time horizons, generating returns of 8.8%, 11%, 9.9% and 7.8% over 3, 5, 7 and 10 year periods to 30 September and it has delivered these returns while avoiding excessive levels of risk.
The Future Fund’s asset allocation remains consistent with the positioning we have had for some time. We continue to position the portfolio modestly below a neutral risk setting, maintaining our discipline to only take on risk where the potential rewards justify it.
From 1 July 2017, the Future Fund’s revised Investment Mandate took effect. The target return has reduced from CPI + 4.5% to 5.5% pa to CPI + 4% to 5% pa. We are still required to take acceptable but not excessive risk. This is still a challenging target, but it provides a realistic objective and a clearer sense of the Government’s view of the balance it wants between risk and return.
Looking at our other funds, the Medical Research Future Fund is performing well and at 30 September stood at $6.9bn. We are building out and diversifying the portfolio, including allocations to private equity and alternatives.
The DisabilityCare Australia Fund and the Nation-building Funds have also performed in line with their risk and return objectives and collectively were worth just over $18bn at 30 September 2017. We continue to invest these funds in accordance with their low risk mandates.
The Future Fund Board of Guardians invests nearly A$160bn across the five public asset funds for benefit of future generations of Australians.
With over a decade of strong performance behind us, we are now focused on setting ourselves up for the 10 years to come. We are operating in an increasingly challenging and complex environment. The market environment and the opportunity set of good investments continually evolves. In addition, the investment industry itself, like many other industries at the moment, is changing and adapting and it is important to our future success that we adapt our business to maintain or hopefully extend our comparative advantages.
We are upgrading our investment data, systems and analytics capability, and using technology to drive greater efficiency and effectiveness across our business and investment processes. Our ability to gather and synthesise the data and information available to us presents a significant opportunity and is a major focus for our business strategy. We are also investing in our people and culture, recognising that the capability of our staff is at the heart of our success.
This is a multi-year program of work but it recognises that continually improving the way we work and leveraging the advantages we have will set us up for future success.
I welcome your questions.