Statement by Dr Raphael Arndt, Chief Executive Officer of the Future Fund Management Agency, to the Senate Finance and Public Administration Committee
Budget Estimates, 5 April 2022, Parliament House, Canberra
Thank you for the opportunity to make some brief opening comments.
In the seven weeks since we last appeared before this Committee, some very significant global events have caused extensive disruption in global markets, with a wide-spread flow-on effect for economies and implications for investors.
In our most recent position paper, ‘A New Investment Order’, published in September last year, we talked about a number of paradigm shifts that are shaping investment globally and that we have been watching closely for some time. These shifts include deglobalisation, inflation and fiscal-monetary coordination. We have seen many of these changes accelerate recently.
The unprecedented and ongoing response to Russia’s invasion of Ukraine is impacting global markets, supply chains, and traditional geopolitical models. With this backdrop our view remains that the biggest challenge for long term investors is rising inflation and rising interest rates, and the effect these will have on asset prices.
I also note that on 28 February following Russia’s invasion of Ukraine we moved to sell down our holdings in companies listed on the Russian stock exchange. Sanctions on Russia and the closure of the Moscow stock exchange have hampered every investor’s efforts to sell. We have reduced our holdings from over $200m to around $180m – less than 0.1% of the Fund - and intend to wind down the holdings as market conditions allow.
The portfolio continues to be positioned with a neutral risk setting and around the middle of the range we would normally expect. However, as I mentioned at our last appearance, late last year we took some risk off, particularly in the listed equities program, given that risk is likely to be less well-rewarded in future.
We continue our work to identify opportunities to access value from less liquid and more skill-based investments, and working our relationships with our partners to identify more focused opportunities both to secure returns and to manage risk.
Just prior to our last appearance we reported on the performance and positioning of our funds to 31 December 2021.
The Future Fund performed strongly through the December quarter, delivering an annual return of 19.1% for the calendar year. Over 10 years the Fund has delivered a 10-year return of 10.8% pa against a target of 6.2% pa.
Looking ahead we expect returns will be harder to achieve, with ongoing fragility, and disruption to global markets and economies continuing as key themes for some time to come. Lower returns will become the new norm over the long term.
The Medical Research Future Fund, the Aboriginal and Torres Strait Islander Land and Sea Future Fund, the DisabilityCare Australia Fund, the Future Drought Fund and the Emergency Response Fund continue to perform as intended.
In total across the six funds, the Future Fund Board of Guardians invests around $250bn for the benefit of future generations of Australians.
I welcome your questions.