In 2006, the Australian government created the Future Fund as an independently managed sovereign wealth fund with the aim of strengthening the government’s long-term financial position.
Sovereign wealth funds are special purpose investment funds owned by government.
Sovereign wealth funds hold, manage, or administer assets to achieve financial objectives, and employ a set of investment strategies which include investing in foreign financial assets.
As of 31 December 2023, the Future Fund was valued at $272.3 billion, returning 8 per cent for the 2023 calendar year.
It is chaired by former treasurer Peter Costello who says the fund is now in good shape after the pressures posed during the COVID years.
“A return of 8 per cent for the calendar year was ahead of the Future Fund’s long-term investment return target – notwithstanding the very strong inflation which has increased the CPI+ target. The fund has added $15.6 billion in earnings in 2023,” he says.
“Over the past decade the Future Fund has delivered an average annual return of 8.2 per cent against a target of 6.8 per cent. Since 2006, the Future Fund has taken a once and only contribution of $60.5 billion and grown it to a record $211.9 billion. It has earned more than $151 billion.
“As the government’s only substantial financial asset, the fund is fulfilling its role of strengthening the nation’s balance sheet, which is now carrying significant government debt.
Mr Costello’s tenure at the helm of the future fund will come to end this month and he is set to be replaced by former Labor politician and union leader Greg Combet.
For the first time since the fund was created, withdrawals were allowed from 1 July 2020, despite the government having indicated back in 2017 that it intended to allow the fund to accumulate until at least 2026/27 before making withdrawals.
Funds can be withdrawn from the Future Fund to cover the annual unfunded Commonwealth superannuation liabilities.
The Commonwealth’s unfunded liabilities are currently being paid out of consolidated revenue. By helping to meet these liabilities, the Future Fund will ease pressure on the government’s budget at a time when an ageing population is likely to place significant pressure on its finances.
From 1 July 2017, the fund’s Investment Mandate was to achieve an average annual return of at least the Consumer Price Index plus 4 to 5 per cent per annum over the long term, with an acceptable but not excessive level of risk.
The fund has received contributions from a combination of budget surpluses, proceeds from the sale of the government’s holding of Telstra and the transfer of remaining Telstra shares.
Why does the Future Fund matter?
On the surface, the Future Fund has been set up to create sovereign wealth for future generations of Australians. But it doesn’t just affect the younger cohort.
One of the reasons for the Future Fund’s creation was to create a backup against unfunded superannuation liabilities – or in short, the fund will play a big role in funding Australia’s retirement system.
As the Australian population ages these super liabilities will only grow larger, so keeping the fund healthy and thriving benefits us all.
Do you think the Future Fund has been a success? Or has it robbed the government of the chance to spend on important projects and infrastructure?
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