The Future Fund has turned in a stellar performance, earning 11.5 per cent for the federal government in the year to June 30.
The fund, established in 2006 to pay for unfunded superannuation liabilities for Commonwealth public servants, has returned a healthy 9.8 per cent return in the past three years and 10.4 per cent over a decade.
Those figures put it ahead of superannuation funds. The leading super fund, UniSuper, returned 9.9 per cent last year and the 10-year average for super funds is 8.8 per cent.
However, the comparisons are not direct because the Future Fund pays no tax on its returns while super funds pay 15 per cent for members in accumulation.
Also super funds have much higher costs as they have millions of members who must be accounted for and communicated with individually while the Future Fund has to report only to the federal government.
“The Future Fund was created to strengthen the Commonwealth’s long-term financial position. With contributed capital of $60.5 billion that capital has now earned over $102 billion, taking the Future Fund to a total of $162.6 billion,” chairman Peter Costello said.
“Over 10 years, the fund has achieved a return of 10.4 per cent annually, exceeding its benchmark of 6.5 per cent. This return is particularly impressive on a risk-adjusted basis given the level of risk taken by the fund.”
However, the fund warned in its statement that returns in the next 10 years were “very unlikely to be this strong, meaning the ability to generate returns alongside disciplined risk management will be important”.
The Future Fund has earned its returns by holding an unusually large exposure [36.8 per cent] to alternative assets such as private equity [15.8 per cent], infrastructure [7.5 per cent] and an unexplained “alternative” category of 13.5 per cent.
Typically super funds in their “balanced” options have about 16 per cent of assets in alternatives.
Associated funds performing well
Other associated funds also performed well, with the Medical Research Fund returning 5.2 per cent for the year (compared to its 3 per cent target).
It was valued at $9.8 billion at June 30, 2019, and received an extra $7.8 billion in contributions from the Commonwealth in July.
The Aboriginal and Torres Strait Islander Land and Sea Future Fund, established in February 2019, returned 0.9 per cent to June. Its $2 billion establishment fund was worth $2.206 billion in June and it is targeting a return of 2 to 3 per cent above the inflation rate.
Its role is to support purchases of land and sea assets for indigenous groups.
At June 30, the Disability Care Australia Fund was valued at $16.4 billion. That represents a return of 2.2 per cent in the past 12 months against a benchmark target of 2.3 per cent. This fund helps support the National Disability Insurance Scheme
The two nation building funds [the Education Investment Fund and the Building Australia Fund] set a benchmark return of the Australian three-month bank bill swap rate + 0.3 per cent a year, calculated on a rolling 12-month basis. The mandates require that investments minimise the probability of capital loss over a 12-month horizon.
At June 30, the Education Investment Fund and the Building Australia Fund each stood at $4.0 billion.
In the past 12 months, the Education Investment Fund and Building Australia Fund each generated returns of 2.3 per cent, meeting benchmark targets.
The assets of the Building Australia Fund are about to transfer to the new Future Drought Fund, which starts on September 1.
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