16 October 2024

Exploring Australia's $290 Billion Future Fund: Investments and Growth Insights

Discover how Australia's Future Fund grew to A$290 billion in Funds Under Management (FUM) and explore its current investment strategies and performance.

Exploring Australia's $290 Billion Future Fund: Investments and Growth Insights

Australia's Future Fund has grown to an impressive A$290 billion in Funds Under Management (FUM), making it one of the largest sovereign wealth funds globally. Understanding the Future Fund requires a closer look at what sovereign wealth funds (SWFs) are and their investment strategies.

Sovereign wealth funds are state-owned investment entities that manage a country's reserves to generate wealth and financial returns. They typically invest in a diverse range of assets, including stocks, bonds, real estate, and private equity. The primary objectives of SWFs include:

  1. Stabilization: Providing a financial buffer against economic shocks by saving surplus revenues, particularly from natural resources.
  2. Savings for Future Generations: Investing to ensure future government spending, especially when dealing with finite resources like oil.
  3. Diversification: Spreading investments to reduce reliance on domestic economies and seek higher returns.
  4. Economic Development: Investing in domestic projects or industries to stimulate growth.

Notable examples of sovereign wealth funds include the Norway Government Pension Fund, the Abu Dhabi Investment Authority, and the China Investment Corporation. These funds are typically not open to the public and have restrictions on their investment choices.

The Future Fund was established in 2006 with an initial A$60 billion injection from the Howard government. Since then, there have been no cash inflows or withdrawals, with no changes expected until at least 2026-27. The fund avoids investments in certain sectors, notably tobacco and military weapons.

Currently, the Future Fund comprises multiple sub-funds, with the main fund holding A$224.9 billion and several others designated for specific purposes. The fund reports its assets quarterly on the ASX Market Announcements Platform, despite not being directly listed.

As of June 30, 2024, the Future Fund's asset allocation includes 37% in equities, divided between Australian and global markets, and 14.5% in private equity. While the fund does not disclose specific stock investments, it participates in company AGMs and has notably voted against Woodside's climate plan, aligning with nearly 60% of investors.

The fund's other allocations vary, with the Medical Research Fund holding 43.3% of its A$23.1 billion in cash, while the Aboriginal and Torres Strait Islander Land and Sea Future Fund has 28% in cash and 17.6% in credit.

Currently chaired by former Labor government minister Greg Combet, who succeeded Peter Costello, the Future Fund delivered a 9.1% return in FY24, with a 10-year annualized return of 8.3%, surpassing its target of 6.9%. CEO Raphael Arndt described the results as 'very strong,' emphasizing the portfolio's resilience against geopolitical risks and changes in the investment landscape.

The Future Fund is an essential entity in Australia’s financial landscape, and its quarterly reports are crucial for stakeholders. While it may not yet rival the likes of China or Norway, its impressive performance suggests it could gain more prominence on the global stage in the near future.

Source: Stocks Down Under