FY22 in numbers
The 2021–22 financial year was one of ongoing pandemic-accelerated change, global market turmoil, rising inflation and geopolitical tensions. These were all forces described in our New Investment Order paper, published in September 2021.
Organisations explored new ways of working in the wake of the pandemic, while the push remains ongoing to get workers back into offices to reinvigorate cities and stimulate economies. This return continues to be hampered by waves of COVID-19.
Meanwhile, the looming threat of increasing inflation intensified throughout the year.
As central banks tightened monetary policy to rein in that inflationary pressure, and geopolitical tensions continued to create shocks in investment markets, the Future Fund has repositioned for the current challenging environment – and undoubtedly a volatile future.
The ongoing fragility and disruption to global markets and economies, combined with rising inflation and ongoing geopolitical tensions, have been key themes impacting the new investment order and we expect this to remain the case for the foreseeable future.
Investors should expect lower future returns over the long term.
Despite this, we continued to stay firmly focused on our purpose while evolving our strategy and processes, strengthening our culture, and thoughtfully building out our skills and resources across the organisation.
Highlights from the year
The Future Fund Way
The Future Fund Way is both our shared language and a set of expectations that encapsulates our culture and guides our ways of working.
Since inception, a collection of simple, fundamentally important notions have underpinned our culture, and have formed the basis of the Future Fund Way.
We engage with one another and others respectfully; each and every role in the organisation is equally as important as all others; the investment performance of the Future Fund is a common and singular goal for the whole organisation, and everyone works together collaboratively to achieve that goal.
The Future Fund Way was formalised in FY22 and builds on this cultural ideology. It is underpinned by two foundational principles, which help ensure we are pulling in the same direction.
The first principle is One Team, One Purpose.
This phrase pervades everything we do. It helps hone our resources and concentrates our activity on the things that are most valuable overall. It means our goals are aligned across teams; we work hard to avoid silos, and we never pull in different directions or work against one another.
The second principle is, Investment Performance is our Focus.
This simple phrase is our North Star. It is the lens through which we make our strategic, investment and operational deliberations and decisions, and it directs our collective focus and attention on achieving our legislated mandates and our purpose.
There are five keys to our culture, that collectively define our culture and describe how we unlock our full potential.
We work together, across teams, to get things done. We share our knowledge and skills. We can’t operate to our full potential – individually or collectively – without the perspective and input from our colleagues.
We help our colleagues achieve success; their success is our success. We are encouraged to offer help proactively and to be open to receiving help.
We try new things, take risks where appropriate, and question when necessary. We are never satisfied with the status quo. We are prepared to do things differently. We are comfortable with failure and celebrate it as a learning opportunity.
We invest on behalf of all Australians. We welcome scrutiny and conduct ourselves in a manner that is befitting of the privilege bestowed on us. We make decisions with this privilege in mind so we can present them with confidence.
To deliberate means that once we’ve made a decision, we pause to consider whether we have factored in every reasonable angle, consequence, risk and option.
We know that being truly inclusive as an organisation can give us a competitive edge. Our people are part of a culture where everyone feels welcome to speak up and to contribute – a culture that values and benefits from a diverse range of perspectives and insights that will help shape our organisation and drive superior performance over the long term.
To be successful into the future as we continue to grow and evolve, we are continuing to enhance our unique and definitive culture. In doing so, our core ideology should never change.
A New Investment Order
The Future Fund published a position paper in September 2021 titled A New Investment Order in which we identified several paradigm shifts, many catalysed or accelerated by COVID-19 – and this thinking continues to influence the construct of our portfolios.
While we thought some of the themes might play out over the next decade, we have instead seen all of the themes unfold in a 12-month period – war, deglobalisation, inflation and rising interest rates – a challenging quadrilateral. Add potentially slower growth and you have a thought-provoking environment for policymakers and investors.
One of the key issues contemplated in the paper was the likelihood of a change in the inflationary regime. We posited that there was a risk of higher and more volatile inflation in the forward period, due to the convergence of structural changes catalysed by the COVID-19 epidemic. This situation was exacerbated by the Russian invasion of Ukraine.
While these accelerants have contributed to headline inflation moving to levels not seen in the developed world for around 40 years, our research focused on the structural tailwinds for deflation declining and becoming headwinds. These include issues such as supply chain rebuilding; capital expenditure required to meet the decarbonisation challenge; demographic changes; and potential shifts in the bargaining power of labour over capital.
Over the year we invested around A$30 billion in strategies designed to increase our portfolio resilience to an inflationary regime that is higher than the market currently expects. These investments span public and private market opportunities and are diversified as the inflationary challenge is likely to come in many forms and will create winners and losers across the economy.
The portfolio construction challenge in a world where inflation is sustainably higher and more volatile than it has been in decades, and assets behave differently in relation to the market environment – and each other – will remain a key focus.
To read the full position paper, please visit: www.futurefund.gov.au/news-room/position-paper---a-new-investment-order
Dedicated treasury function established
In the wake of the market volatility caused by the COVID-19 pandemic, we took the strategic decision to formalise our treasury function to provide a centralised, coordinated approach to liquidity and balance sheet management.
A dedicated treasury function is something the Agency had considered for several years; however, the pandemic sharpened our focus as the value of clear information and a strong liquidity plan for surviving unexpected market turmoil became paramount.
A dedicated project team designed the core components of the function, including the desired operating model and governance structure, the technology and data capability requirements, and resourcing requirements.
Effective from 1 April 2022, the Agency’s treasury function is led by Paul Banks and sits within the Overlays Team. Following its establishment, the Treasury Team has focused on developing its approach to cash management, liquidity maintenance, availability and deployment of funds, and balance sheet management.
Strengthening our focus on diversity and inclusion
The Agency’s Senior Leadership Team is united in their belief that providing staff with a supportive, challenging and inspiring work environment where they feel comfortable and proud to be themselves, is essential to producing work of the highest standards.
As the Future Fund continues to grow, the Agency has strengthened our commitment to diversity and inclusion. Workplace diversity at the Future Fund means a broader range of views, greater creativity and innovation, healthy and respectful debate, thoughtful decision-making, and a more engaging employee experience.
In April 2022, the Agency’s CEO, Dr Raphael Arndt, prioritised the implementation of 12 initial actions designed to help foster a more inclusive workplace.
The 12 actions are:
- Enhance the Agency Vision to make our desire for inclusion explicit
- Hold CEO-hosted lunches with Agency staff, designed to encourage conversations around the importance and meaning of diversity and inclusion for our people
- Implement a unique self-identification survey designed to establish a baseline about who our people are
- Empower Agency staff to form employee resource groups
- Formalise the use of optional personal pronouns and introduction of an Acknowledgement of Country in our email signatures
- Initiate Agency-wide respectful workplace training
- Refresh our workplace complaints process
- Implement a private, dedicated CEO email channel
- Implement tailored “People Days” across the Agency to further enhance consistency and transparency to people and development decisions
- Initiate unconscious bias training
- Include dedicated initiatives to form a key part of the FY23 Business Plan
- Incorporate CIO-led change to our investment process
Working groups with representation from across the Agency were established to help achieve these actions.
While the implementation of the 12 actions began in FY22, many will continue to evolve and roll out over the coming years.
Celebrating 15 years of the Future Fund
In 2021, the Future Fund celebrated 15 years since inception.
The Future Fund’s purpose has remained the same throughout those years – to invest for the benefit of future generations of Australians.
Seeded with $60.5 billion in capital at its inception in 2006, the Fund has performed strongly over the years, tripling that amount to $194.4 billion at 30 June 2022. This has been achieved with no further contributions from government.
Reflecting this success, the Future Fund Board of Guardians and the Agency have been entrusted over the last several years with the management of five additional public asset funds with a combined value of over $242 billion.
The value we add to the Funds we manage strengthens the Australian Government’s long-term financial position, supports medical research, assists Indigenous Australians, supports drought resilience and communities impacted by natural disaster, and helps fund Australia’s National Disability Insurance Scheme.
There have been two financial events of global significance since the Future Fund was established in 2006: the global financial crisis and the COVID-19 pandemic. The years in between saw the Future Fund mature and evolve into a sophisticated, globally respected $242 billion institution.
The strong investment performance across all six of the mandates managed by the Future Fund Board of Guardians, and the professional and disciplined approach which the Agency has applied to its work, have attracted bipartisan support throughout our 15-year history.
The Future Fund’s achievements extend well beyond the strong long-term investment performance. The Future Fund developed a new way of investing which brought diverse teams together to manage a portfolio as a whole. This whole-of-portfolio approach – which is recognised around the world – has been successful due to the Agency’s strong culture and focus on the mantra of One Team, One Purpose.
A special website was created to mark 15 years of the Future Fund. It chronicles the organisation’s origins, purpose, structure and investment approach. It can be found at 15years.futurefund.gov.au.