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Future Fund

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Future Fund
Company typeGovernment-owned corporation
IndustryInvestments
Founded2006; 18 years ago (2006)
HeadquartersMelbourne, Victoria, Australia
Key people
Greg Combet (chairman)
Raphael Arndt (CEO)
RevenueDecrease A$-1.10b (FY 2020)
Decrease A$-1.43b (FY 2020)
Total assetsIncrease A$206,135b (FY 2023)
Total equityIncrease A$161.05b (FY 2020)
Number of employees
201 (2021)
Websitewww.futurefund.gov.au

The Future Fund is an independently managed sovereign wealth fund established in 2006 to strengthen the Australian Government's long-term financial position by making provision for unfunded superannuation liabilities for politicians and other public servants that will become payable during a period when an ageing population is likely to place significant pressure on the Commonwealth's finances. As of 31 December 2023, the fund has $272.3 billion in assets under management.[1]

Purpose

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The legislation[2] establishing the Future Fund describes its main object as being 'to strengthen the Commonwealth's long-term financial position'. While legislation permits withdrawals from the fund from 1 July 2020, the government indicated in 2017 it intends to allow the fund to continue to accumulate until at least 2026/27 before making withdrawals. The Investment Mandate[3] for the Future Fund is to target a benchmark return of at least the Consumer Price Index + 4 to 5 per cent per annum over the long term, while taking an acceptable but not excessive level of risk.

The Future Fund Board is currently also responsible for six other Australian sovereign wealth funds:

  • DisabilityCare Australia Fund – A fund to contribute to the cost of the National Disability Insurance Scheme. At 31 December 2023, it was valued at A$16.9 billion.[4]
  • Medical Research Future Fund – A fund to disperse interest generated to medical research. At 31 December 2023, it was valued at A$22.3 billion.[5]
  • Future Drought Fund - A fund to provide secure, continuous funding for drought resilience initiatives. Valued A$4.7 billion at 31 December 2023.[6]
  • Aboriginal and Torres Strait Islander Land and Sea Future Fund (ATSILS Fund) – A fund to enhance the Commonwealth's ability to make payments to the Indigenous Land Corporation. Established in February 2019 with a capital contribution of A$2 billion transferred from the Aboriginal and Torres Strait Islander Land Account. Valued A$2.1 billion at 31 December 2023.[7]
  • Disaster Ready Fund - A fund to provide up to one billion dollars over the next five years, from 2023-24 for natural disaster resilience and risk reduction across Australia.[8] Valued at A$4.7 billion at 31 December 2023.
  • Housing Australia Future Fund The A$10 billion Fund was established on 1 November 2023 to create a secure, ongoing pipeline of funding for social and affordable rental housing, fulfilling the commitment the Government made to the Australian people.

The Education Investment Fund, a fund to provide capital investment in higher education and vocational education and training valued at A$3.9 billion in 2018, was ended by 2019 legislation, which redirected the money to natural disaster relief.[9]

Governance

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Inaugural chairman of the Board of Guardians, David Murray, pictured in 2008

Investment of the Future Fund is the responsibility of the Future Fund Board of Guardians with the support of the Future Fund Management Agency. The Future Fund is overseen by an independent Board of Guardians selected on the basis of their expertise in investment management and corporate governance. The current Board composition is:[10]

Position Name Term commenced Term expires Term served
Acting Chair Mary Reemst 6 October 2023 6 October 2028 1 year, 34 days
Guardian Deborah Ralston 15 September 2021 15 September 2026 3 years, 55 days
Patricia Cross 11 May 2021 11 May 2026 3 years, 182 days
Rosemary Vilgan 4 February 2024 4 February 2029 279 days
Michael Wachtel 3 April 2016 3 April 2026 8 years, 220 days
John Poynton 4 February 2014 4 February 2024 10 years, 279 days

The Board was chaired by David Murray between 2006 and 2012. Amidst some controversy it was announced that David Gonski would succeed Murray as independent non-executive chairman when Murray's term expired on 3 April 2012.[11][12][13][14] At the same time, Steve Harker, an investment banker from Morgan Stanley in Australia, replaced Brian Watson as a Guardian. David Gonski chaired the Board until January 2014 when it was announced that he would leave to chair the ANZ Bank. Costello was appointed the interim chair until the announcement of his permanent chairmanship in February 2014. Greg Combet replaced Costello as chairman in February 2024.[15]

History

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On 11 September 2004, the Federal Treasurer, Peter Costello, announced that the Future Fund would be established following the 2004 federal election.[16] The Future Fund Act 2006 (Cth) received Royal Assent on 23 March 2006. On 5 May 2006, A$18 billion, derived from government surpluses as well as income from the sale of a third of Telstra in its ongoing privatisation, was deposited into the fund.[17] On 28 February 2007, the government transferred the Commonwealth's remaining 17% stake in Telstra, valued at A$8.9 billion, into the Fund.[18] These contributions and transfers increased the Fund to over A$50 billion by the end of the 2006-2007 financial year.

In March 2007, the opposition Labor Party announced it would withdraw A$2.7 billion from the Future Fund to finance the National Broadband Network, an initiative to install broadband internet infrastructure across Australia, if it won the 2007 election; this proposal prompted government ministers to proclaim that Labor intended to "raid" the Future Fund for their own means.[19] Labor later indicated that the use of any funds from the Future Fund towards a national high speed broadband network will have to comply and meet all requirements of any commercial investment. This included producing a commercial rate of return on the invested funds, with all profits being returned into the Future Fund allowing further investment.

In May 2007, it was revealed that the Chicago-based Northern Trust Corporation had won a competitive tender process to manage the Fund. Rick Waddell, President and Chief Operating Officer of Northern Trust, indicated that Australian companies did not have the expertise to manage the Future Fund.[20] Northern Trust stood to collect A$30 million in annual fees. Controversy arose when it was realised that the Fund will be managed by a foreign bank with no base in Australia. National secretary of the Finance Sector Union Paul Schroder estimated that around 100 jobs will be lost when the US company starts managing the Fund from Singapore using staff from India.[21] Northern Trust was linked to the Enron scandal.[20] General Manager of the Future Fund Management Agency, Paul Costello, told a Senate estimates committee hearing that "We were not concerned that this represented a risk to us in terms of the arrangements that we were seeking to put in place with Northern Trust".[22]

In his 2008 Australian federal budget speech, the Treasurer, Wayne Swan announced three new "Nation-Building Funds", also to be managed by the Future Fund Board.[23] These included a $20 billion Building Australia Fund to invest in roads, rail, ports and broadband; an $11 billion Education Investment Fund, which absorbed the $6 billion Higher Education Endowment Fund set up by the previous government; and a $10 billion Health and Hospital Fund.[24] In that budget and the following 2009 federal budget, the Labor Rudd government promised A$41 billion to create these new funds.[25]

The fund become a member of the International Forum of Sovereign Wealth Funds and signed up to the Santiago Principles on best practices for managing Sovereign Wealth Funds.[26] As a member it publishes how it adopts and implements the principles within its governance procedures.[27]

In May 2013, a DisabilityCare Australia Fund was established by the DisabilityCare Australia Fund Act 2013. The Fund will fund the National Disability Insurance Scheme and is also to be managed by the Future Fund Board. The Fund is to receive contributions from the increase in the medicare levy by 0.5% to a total of 2% from 1 July 2014.

In the May 2014 federal budget, the Abbott government announced its intention to establish the Medical Research Future Fund[28] and the Asset Recycling Fund and to discontinue the Building Australia Fund, Education Investment Fund and Health and Hospitals Fund. These changes are subject to the passage of legislation.[29] The Senate approved the establishment of the Medical Research Future Fund in August 2015, to be managed by the Future Fund, with interest generated going to medical research, beginning with $10 million in 2015, growing to $390m over the following three years.[30]

In 2016 it was announced that the Future Fund, Queensland Investment Corporation and AGL Energy would form the Powering Australian Renewables Fund (PARF) investing in two of Australia's largest solar plants at the time.[31]

In April 2019, the Future Fund announced that it had returned an average of over 10% a year in the last decade.[32] In September 2019, the Future Fund reported it had $162.6 billion in assets at the prior June 30, from seed capital of $60.5 billion in 2008, with no contributions made over the period.[33]

Investments in nuclear weapons and tobacco industries

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In May 2011, the Future Fund was criticised by The Age newspaper for investing A$135.4 million in 15 foreign-owned companies involved in the manufacture of nuclear weapons for the United States, Britain, France and India.[34] Information about the investments was obtained through a freedom of information request by the International Campaign to Abolish Nuclear Weapons.[35]

In February 2013, the Future Fund announced it would exclude primary tobacco producers from its investment portfolios.[36]

Funds held under management

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The total funds held under management, as of 31 December each year, inclusive of funds held in the Building Australia Fund, the Health and Hospitals Fund, the former Education Investment Fund and the DisabilityCare Australia Fund, are:

Date
(31 Dec)		 Total funds
(billions)		 Notes
2008 Increase A$59.62 [37]
2009 Increase A$87.23 [38]
2010 Increase A$90.51 [39]
2011 Decrease A$89.39 [40]
2012 Increase A$94.96 [41]
2013 Increase A$107.36 [42]
2014 Increase A$119.47 [43]
2015 Increase A$128.5 [44]
2016 Increase A$139.5 [45]
2017 Decrease A$138.9 [46]
2018 Increase A$147.0 [47]
2019 Increase A$168.0 [48]
2020 Increase A$170.9 [49]
2021 IncreaseA$203.6 [50]
2022 DecreaseA$196.1 [51]
2023 IncreaseA$211.9 [52]

See also

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References

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  1. ^ "Future Fund - Sovereign Wealth Fund, Australia - SWFI". www.swfinstitute.org. Retrieved 23 January 2024.
  2. ^ "Federal Register of Legislation - Australian Government". November 2023.
  3. ^ "Future Fund | Investment mandates".
  4. ^ "Future Fund Management Agency, Australian Government". www.futurefund.gov.au. Retrieved 23 January 2024.
  5. ^ "Future Fund Management Agency, Australian Government". www.finance.gov.au. Retrieved 23 January 2024.
  6. ^ "Future Fund Management Agency, Australian Government". Department of Agriculture, Fisheries and Forestry. Retrieved 23 January 2024.
  7. ^ "Future Fund Management Agency, Australian Government". www.futurefund.gov.au. Retrieved 31 August 2023.
  8. ^ "Disaster Ready Fund". National Emergency Management Agency. Retrieved 28 August 2023.
  9. ^ "AEU: Fed Govt ends education investment fund".
  10. ^ "Board Member Profiles". About us. Future Fund Board of Guardians. 3 April 2016. Retrieved 14 April 2016.
  11. ^ Evans, Michael (13 March 2012). "Sydney bigwig to head Future Fund". Sydney Morning Herald. Retrieved 16 March 2012.
  12. ^ Wright, Jessica; Yeates, Clancy (16 March 2012). "Murray wades into Future Fund fight over Costello". Sydney Morning Herald. Retrieved 16 March 2012.
  13. ^ Packham, Ben; Massola, James (15 March 2012). "Labor refuses to release report showing Future Fund board wanted Costello, not Gonski". The Australian. Retrieved 16 March 2012.
  14. ^ Griffiths, Emma (16 March 2012). "Minchin backs Gonski over Future Fund 'shemozzle'". ABC News. Australia. Retrieved 16 March 2012.
  15. ^ Greg Combet announced as new Future Fund boss Australian Financial Review 29 January 2024
  16. ^ ELECTION 2004 New fund for future super bills, newstext.com.au 11 September 2004.
  17. ^ "FAQs". Future Fund. 9 May 2011. Retrieved 16 March 2012.
  18. ^ "$9bn Telstra shares in Future Fund". News.com.au. 28 February 2007.[dead link]
  19. ^ Murphy, Katharine (28 March 2007). "Labor seizes on Lib's Future Fund backing". The Age. Melbourne. Retrieved 18 March 2012.
  20. ^ a b Ryan, Peter (24 May 2007). "Northern Trust defends Enron connection". The World Today, ABC News. Australia. Retrieved 16 March 2012.
  21. ^ Alberici, Emma (22 May 2007). "Foreign bank to manage $51b Future Fund". ABC News. Australia. Retrieved 16 March 2012.
  22. ^ "Future Fund unfazed by Enron link". The Age. Australia. AAP. 23 May 2007. Retrieved 16 March 2012.
  23. ^ Wayne Swan (13 May 2008). Budget Speech 2008‑09 (Speech). Parliament House, Canberra. Retrieved 17 March 2012.
  24. ^ Nation-building Funds Act 2008
  25. ^ "We won't raid $44bn fund pool, says PM Kevin Rudd". Vogue Financial Solutions. 15 May 2008.
  26. ^ International Forum of Sovereign Wealth Funds. "IFSWF Our members". Archived from the original on 27 September 2016. Retrieved 24 September 2016.
  27. ^ futurefund.gov.au. "Building a long-term sustainable sovereign wealth fund under the Santiago Principles". Retrieved 28 October 2016.
  28. ^ Australian Government Budget 2014-15
  29. ^ Annual Report 2013-14
  30. ^ Medical Research Future Fund finally gets Senate approval; The Australian; 13 August 2015
  31. ^ Mehra, Prashant (27 July 2016). "AGL signs up investors for renewables fund". News.com.au. AAP. Archived from the original on 27 July 2016.
  32. ^ Koehn, Emma (28 April 2019). "Future Fund returns top 10 per cent for the decade". The Sydney Morning Herald. Retrieved 21 August 2019.
  33. ^ Daquino, Laura (3 September 2019). "Future Fund stay on top of the markets". The Australian. Retrieved 16 September 2022.
  34. ^ Oakes, Dan (26 May 2011). "Australia investing in nuclear arms". The Age. Australia. Retrieved 16 March 2012.
  35. ^ Wright, Tim (May 2011). "Nuclear weapons and Australia's Future Fund" (PDF) (Press release). International Campaign to Abolish Nuclear Weapons. Archived from the original (PDF) on 23 March 2012. Retrieved 16 March 2012.
  36. ^ "Future Fund excludes tobacco producers". www.futurefund.gov.au. Retrieved 28 August 2023.
  37. ^ "Portfolio update at 31 December 2008" (PDF). Future Fund. 30 January 2009. Retrieved 16 March 2012.
  38. ^ "Portfolio update at 31 December 2009" (PDF). Future Fund. 29 January 2010. Retrieved 16 March 2012.
  39. ^ "Portfolio update at 31 December 2010" (PDF). Future Fund. 28 January 2011. Retrieved 16 March 2012.
  40. ^ "Portfolio update at 31 December 2011" (PDF). Future Fund. 30 January 2012. Retrieved 16 March 2012.
  41. ^ "Portfolio update at 31 December 2012" (PDF). Future Fund. 5 February 2013. Retrieved 17 March 2013.
  42. ^ "Portfolio update at 31 December 2013" (PDF). Future Fund. 3 February 2014. Retrieved 3 March 2014.
  43. ^ "Portfolio update at 31 December 2014" (PDF). Future Fund. 5 February 2015. Retrieved 7 March 2015.
  44. ^ "2014/15 Future Fund Annual Report" (PDF). Future Fund. 30 June 2016. Retrieved 14 November 2016.
  45. ^ "2017/18 Future Fund Annual Report" (PDF). Future Fund - Australia's Sovereign Wealth Fund. 29 August 2018.
  46. ^ "Portfolio update at 31 December 2017" (PDF). Future Fund. 1 February 2018. Retrieved 1 June 2019.
  47. ^ "Portfolio update at 31 December 2018" (PDF). Future Fund. 11 February 2019. Retrieved 1 June 2019.
  48. ^ "Portfolio update at 31 December 2019" (PDF). Future Fund. 11 February 2019. Retrieved 26 April 2019.
  49. ^ "Portfolio update at 31 December 2020".
  50. ^ "Portfolio Update to 31 December 2021". Retrieved 31 August 2023.
  51. ^ "Portfolio update to 31 December 2022". Future Fund. 2 January 2023. Retrieved 31 August 2023.
  52. ^ "Portfolio update to 31 December 2023". Future Fund. 23 January 2024. Retrieved 23 January 2024.
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