The Future Fund will actively pursue transactions in markets including Japan and the European Union and focus on domestic real asset exposures, as US policy continues to create volatility in global markets.
Speaking to the Committee for Economic Development of Australia at Shangri-La Hotel in Sydney yesterday (17 June), Future Fund Chair Greg Combet says the sovereign wealth fund’s alternatives portfolio is providing insurance against the uncertainty that has returned to investment markets.
Noting there are significant armed conflicts, globalisation is in retreat, with the US leading a charge against free trade and distancing itself from the post-war security settlement, Combet says the long-standing assumptions about trading relationships and global alliances look less certain.
“These developments in the US nonetheless demand further consideration of the medium and long term implications,” he says.
“We are considering the need to build the physical portfolio in a more diversified way.
“While there are still likely to be compelling opportunities in US dollar denominated asset markets, we will need to devote more time and resources to investigating other markets including Japan and the EU.”
Since it was established almost 20 years ago, the Future Fund has evolved into a significant part of the Australian financial landscape. Its growth and history of above target returns over the long term have strengthened the nation’s finances.
The fund was originally set up to provide for the Australian government’s unfunded public sector superannuation liabilities. Through investment returns alone it has become the government’s largest financial asset.
Combet says the fund’s strong long-term performance is underpinned by a thoughtful investment strategy, good governance, a well-defined and powerful culture and high calibre people.
Unlike a superannuation fund, he says the Future Fund has no members or retail market obligations, and can therefore focus sharply on its long-term risk and return objective. That objective is to deliver a return of CPI plus 4-5% over the long term, which is applied on a rolling 10-year basis.
Combet notes that in a world of significant uncertainty, the fund is well positioned to continue delivering on its mission of investing for the benefit of future generations of Australians.
Board of Guardians
The Future Fund Board of Guardians oversees the investment of more than $300 billion for the benefit of future generations of Australians.
This includes more than $240 billion in the Future Fund. It also includes $66 billion across six other funds that provide funding for policy initiatives ranging from medical research to disaster preparedness, affordable housing, drought resilience and the National Disability Insurance Scheme.
Since it was founded in 2006 with an initial endowment of $60.5 billion in Federal Budget surpluses and the last of the government’s Telstra shares, the Future Fund has grown to its present size on the strength of investment returns alone, averaging 7.8% a year against a CPI-plus return target that has averaged 6.9% a year.
“That is a great almost two decades-long achievement,” Combet says.
“It has done this across a period that includes the global financial crisis, zero interest rates, the Eurozone crisis, Brexit, the covid-19 pandemic, major conflicts in Europe and the Middle East and some of the steepest increases in inflation and interest rates in decades.”
Combet adds that in 2024 the Future Fund returned 12.2% against a mandate target of 6.4%, adding $26 billion in value. In the months since the end of 2024 the fund has continued to perform solidly – “notwithstanding the volatility generated by the US Liberation Day tariffs and numerous other policy induced disruptions”.
Singular focus
This singular focus enables the fund to take a joined-up whole of portfolio approach to investing. Combet adds that this approach means all investment professionals collaborate to source the best possible investment opportunities without the constraints of traditional asset class distinctions on portfolio construction and investment.
“This is quite unique. It demands a collaborative culture and remuneration structure dedicated to a single portfolio-wide return objective,” the fund’s Chair says.
“We focus on setting the overall risk appetite for the portfolio and then working collaboratively across the team to work out how best to build that risk exposure.
“We invest through external investment managers across the world to execute our strategy. This network of fund managers provides us with a valuable source of intelligence that adds to our investment insights.”
“We invest through external investment managers across the world to execute our strategy”
The Future Fund strategy also provides diverse perspectives on what is going on in the world. Combet says this diversity of inputs combined with the skill and expertise of its people adds significant value.
“What was until just six months ago an international consensus on the need for urgent action to slow global warming is under renewed pressure,” he adds.
“In these circumstances it is vital for Australia to have institutions that embody our values, that are thoughtful in navigating this complex global environment, and that are focused on the long-term.
“We are living in extraordinary times. Many of the certainties and assumptions that have underpinned our approach to economic policy and global security for decades are under challenge.”
The investment returns on its funds support important initiatives that directly enhance the lives of Australians. In the 12 months to the end of March 2025, the value of funds grew by $5.1 billion and contributed $1.27 billion to the programs they were established to support.
Write to Adam Orlando at Mining.com.au
Images: Future Fund & Unsplash
