Statement by Dr Rapahel arndt, Chief Executive Officer of the Future Fund Management Agency, to the Senate Finance and Public Administration Committee.
Additional Estimates, 23 March 2021, Parliament House, Canberra
Thank you for the opportunity to make some brief opening comments.
By way of a short introduction, I was appointed Chief Executive Officer of the Future Fund on 1 July last year, having previously been the Chief Investment Officer. Sue Brake is with me today, having been appointed Chief Investment Officer in December last year. Prior to that Sue was Acting Chief Investment Officer and Deputy Chief Investment Officer, Portfolio Strategy.
At 31 December 2020 the Future Fund stood at $171bn, having returned 9.0% pa over the last 10 years against a target return for the period of 6.2% pa.
At $171bn this is the Fund’s highest ever value, with investment returns adding over $110bn to the original capital contributions from Government.
The Fund has more than recovered the losses incurred as a result of the COVID pandemic when markets fell by around a third during early 2020.
The Future Fund’s mandate is to target long-term returns while also focusing on taking acceptable, but not excessive risk.
While we have seen significant economic stimulus boost markets, with encouraging signs across economies in many parts of the world as vaccines are deployed, we also recognise the challenges that remain - including ongoing lockdown measures, uncertain pathways to unwinding fiscal and monetary stimulus measures, and the potential for further economic, market and geopolitical shocks.
This is why we have the portfolio positioned at around neutral levels of risk, and why we continue to build a portfolio for the long-term that is as robust as possible to a range of potential scenarios.
The five other public asset funds we manage, valued at $47bn, also continue to perform well. The Future Drought Fund and Emergency Response Fund in particular started their investment programs as markets were at a low point and benefited from the strong recovery through 2020 into 2021.
I am also pleased to confirm an announcement from last week that PowAR – Powering Australian Renewables - in which the Future Fund holds a 40% stake, and Mercury NZ, have entered into a binding agreement to acquire Tilt Renewables. The transaction will add to the Future Fund’s existing Australian renewable energy assets and increase our exposure to around $1bn. This is an example of the way in which we continue to evolve our program alongside our external investment managers.
I’d like to touch briefly on the context in which we are operating.
The pandemic has accelerated many changes that were starting to reshape markets and economies. We are also very aware that the ability to generate strong returns in the future is likely to be challenged given the low level of interest rates around the world.
With this outlook - as well as the growth in the size and complexity of the portfolios we manage - we must ensure that the organisation remains a mature, resilient and successful investor for the decades ahead.
With this in mind, earlier this year I made a number of changes to our organisational structure. These changes bring technology, finance, and parts of our organisational development functions together in an investment and business operations group under the leadership of our Chief Operating Officer Gordon McKellar. This strengthens the way in which these functions support the all-important investment effort. We will also recruit a Chief People & Culture Officer with a sharpened focus on building and supporting our excellent culture.
As a result of these changes, our Chief Financial Officer, Paul Mann, Chief Culture Officer Liz McPherson, and Chief Technology Officer, Richard Large, each of whom assisted me in redesigning our structure, have left the organisation. Paul, Liz and Richard have each made very valuable and lasting contributions to the Agency. I wish them all the very best and I place on the record my gratitude to them for their dedication.
So, in short, the organisation is delivering strong long-term returns that strengthen the Commonwealth’s long-term financial position and support important initiatives in medical research, indigenous programs, drought and emergency management and disability services. We are focused on sustaining this into the future.
I welcome your questions.