Statement by Dr Raphael Arndt, Chief Executive Officer of the Future Fund Management Agency, to the Senate Finance and Public Administration Committee.
Budget Estimates 26 May 2023, Parliament House, Canberra
Thank you for the opportunity to make some brief opening comments.
Last month we reported on the performance and positioning of our funds to 31 March 2023.
Following three decades of falling inflation, we are currently experiencing an environment of high global inflation that is above central bank targets in many jurisdictions.
In response, interest rates are rising, which is resulting in the re-pricing of assets.
The combination of these factors is creating an extremely challenging investment environment.
The ASX 200 was flat for the 12 months ending March and the S&P500 was down 7.7%. Against this backdrop the Future Fund delivered a positive 1.1% return.
The positive returns achieved in the second half of 2022 continued with a 3.4% gain in the March quarter.
The Future Fund’s investment mandate is to target the benchmark return over the long term. Over the past decade the Future Fund has delivered an average annual return of 9.1% pa against a target of 6.8% pa. Since 2006, with an initial contribution of $60.5bn, the Fund has grown to $203bn at 31 March.
The investment mandate also requires the Board to take “an acceptable but not excessive level of risk.” To this effect, the Future Fund and other portfolios are currently positioned somewhat defensively, reflecting a desire to avoid excessive risk. Our focus remains on protecting the portfolio from a range of scenarios, while seeking opportunities to generate risk-adjusted long-term returns.
The Board has achieved its risk targeting mandate over the 17 years the Future Fund has been in existence with the Fund capturing over a half of all returns from global equity markets during periods of positive returns while falling only about a quarter as much as global equities during periods where markets fell.
While inflation exceeds central bank targets, we anticipate periods where fund performance trails the inflation-based benchmark returns.
The other funds we invest on behalf of the Commonwealth have performed as expected in the volatile environment. At 31 March the total value of the assets managed by the Future Fund Board of Guardians stood at $250bn.
I welcome your questions.