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Year at a glance

We invest for the long term and throughout 2021-22, the Future Fund was able to preserve capital in spite of very volatile and challenging market conditions.

Over the course of the year the bulk of portfolio activity centred on improving portfolio resilience to the risks presented by the new investment environment.

Significant investment activity focused on the risks we identified as being more likely to play out impactfully – in particular, higher inflation, higher volatility, and a potential failure of traditionally defensive assets. 

This work has paid off. The Future Fund is down for the year, but much less than it might have been if we hadn’t prudently made a breadth of portfolio changes.

We are still relatively early in the cycle of our work to reposition the portfolio. To be successful at delivering investment performance in a high inflation world, we need to keep innovating and finding new ways of doing things.

We have conviction in our view of the new world. The work we are doing will have lasting impacts for the years ahead.

Total funds under management

Medical Research Future Fund
$21.6bn
Aboriginal and
Torres Strait
Islander Land and
Sea Future Fund
$2.1bn
Future
Drought Fund
$4.5bn
Emergency
Response Fund
$4.5bn
Future Fund
$194.4bn
DisabilityCare
Australia Fund 
$15.3bn
This is a graphical representation of the monetary value of each of the funds the Agency manages.

Investment performance

The Future Fund 

The Future Fund was established in April 2006 to strengthen the long-term financial position of the Commonwealth of Australia.

Investment Mandate:
CPI + 4.0%–5.0% per annum

To achieve an average annual return of at least the Consumer Price Index (CPI) plus 4.0% to 5.0% per annum over the long term, with an acceptable but not excessive level of risk.

Investment performance:
-1.2%

Return in FY22

$194.4 billion

Value at 30 June 2022

9.7%

10-year return

6.6%

Target 10-year return

Future Fund long-term returns, target benchmarks and volatility over time
Period to 30 June 2022 Return
(% pa)
Target return1
(% pa)
Volatility2
(%)
From inception 7.8 6.8 4.5
10 years 9.7 6.6 4.5
Seven Years 7.5 6.5 4.8
Five Years 7.8 6.6 5.2
Three Years 6.1 7.2 5.9
One Year -1.2 10.1 4.4

Notes:

1 From 1 July 2017 the Fund’s Investment Mandate target return was reduced from CPI + 4.5% to 5.5% pa to CPI + 4.0% to 5.0% pa over the long term, with an acceptable but not excessive level of risk.

2 Industry measure showing the level of realised volatility in the portfolio.

Future Fund Equivalent Equity Exposure since inception

The graph shows a primary metric that the Future Fund uses to understand and manage the broad market risk exposure called the Equivalent Equity Exposure (EEE).  The X axis shows each year since the Fund’s inception and the Y axis shows the EEE on a scale of 1 to 70. The graph shows the range within which the Fund is expected to operate most of the time, which is currently at 55-65.

Risk positioning 

One of the primary metrics we use to understand and manage the broad market risk exposure of the Future Fund is Equivalent Equity Exposure (EEE).

EEE estimates the amount of market exposure we have when looking through the whole portfolio.

The EEE range within which we are expected to operate most of the time has been reviewed and uplifted to 55–65 for the Future Fund as part of the deep review of our investment strategy.

Throughout 2021–22, the portfolio risk setting has averaged close to the middle of the range and at 30 June 2022 the EEE stood at 59.

The chart above demonstrates how the EEE of the Future Fund has changed over time.​​ 

We are currently in the seventh distinct risk-taking regime for the portfolio since establishment.

  1. The build of the Future Fund portfolio was suspended in late 2007 due to concerns over financial stability and the sustainability of high asset prices, and a very low risk profile was maintained into the global financial crisis.
  2. Portfolio risk exposure was increased as extraordinary and globally coordinated economic policies were implemented to fight the crisis.
  3. Risk levels were raised further as the European crisis subsided and the President of the European Central Bank committed to ‘do whatever it takes’ to underwrite the integrity of the euro.
  4. As expected returns declined (given strong market performance supported by low interest rates), portfolio risk was gradually reduced to moderately below normal levels.
  5. Risk levels were increased towards more normal levels, reflecting the emergence of strong economic growth and corporate earnings, and central banks signalling an extension of accommodative monetary policies, together with the decision to increase the Future Fund’s structural risk appetite.
  6. Risk levels were reduced to moderately below neutral, reflecting the elevated risk environment resulting from the COVID-19 pandemic and policy response.
  7. The structural risk level was adjusted during the 2020–21 financial year and we narrowed the range around which we expect to manage the portfolio. Subsequently, EEE has been managed reasonably close to structural levels.

Medical Research Future Fund 

The Medical Research Future Fund (MRFF) was established in 2015 to improve the health and wellbeing of Australians by providing grants of financial assistance to support medical research and medical innovation.

Investment Mandate:
RBA cash rate + 1.5%–2.0% per annum

To achieve at least the Reserve Bank of Australia cash rate target plus 1.5% to 2.0% per annum, net of investment fees, over a rolling 10-year term.

Investment performance:
0.1%

Return in FY22

$21.6 billion

Value at 30 June 2022

Medical Research Future Fund long-term returns, target benchmarks and volatility over time
Period to 30 June 2022 Return
(% pa)
Target return1
(% pa)
Volatility2
(%)
From inception
(22 September 2015)
4.1 2.5 2.9
Five Years 4.2 2.3 3.2
Three Years 3.6 1.8 3.7
One Year 0.1 1.6 2.3

Notes: 

1 RBA cash rate plus 1.5% to 2.0% pa over the long term, with an acceptable but not excessive level of risk.

2 Industry measure showing the level of realised volatility in the portfolio.

Risk positioning

Based on its interpretation of the mandate, the Board has a moderate appetite for risk in the Medical Research Future Fund, on average.

In accordance with our investment process, we also aim to build a portfolio with a relatively high degree of resilience to the investment environment. We seek genuine diversification that achieves greater balance in portfolio construction while allocating risk in a flexible and dynamic manner.

One of the primary metrics we use to understand and manage the broad market risk exposure of the Medical Research Future Fund is Equivalent Equity Exposure.

EEE estimates the ‘look-through’ sensitivity of the portfolio to price movements in global equity markets.

Our expected EEE range for the Medical Research Future Fund is 27 to 35.

At 30 June 2022 the EEE stood at 30, which is below the middle of the range.

Aboriginal and Torres Strait Islander Land and Sea Future Fund

The Aboriginal and Torres Strait Islander Land and Sea Future Fund (ATSILS Fund) was established in February 2019 to enhance the Commonwealth’s ability to make payments to the Indigenous Land and Sea Corporation.

Investment Mandate:
CPI + 2.0%–3.0% per annum

To achieve an average annual return of at least the Consumer Price Index plus 2.0% to 3.0% per annum over the long term, with an acceptable but not excessive level of risk.

Investment performance:
-0.2%

Return in FY22

$2.1 billion

Value at 30 June 2022

ATSILS Fund returns and target benchmarks
Period to 30 June 2022 Return
(% pa)
Target return1
(% pa)
From inception2
(1 October 2019)
4.3 5.3
One year -0.2 8.1

Notes: 

1 CPI + 2.0% to 3% pa over the long term, with acceptable but not excessive level of risk.

2 Prior to inception the ATSILS fund was in an initial transition period from 1 February to 30 September 2019 with a return of 1.3% against a target return of 1.1%

Future Drought Fund

The Future Drought Fund (FDF) was established in September 2019 to support initiatives that enhance the drought resilience of Australian farms and communities.

Investment Mandate:
CPI + 2.0%–3.0% per annum

To achieve an average annual return of at least the Consumer Price Index plus 2.0% to 3.0% per annum over the long term, with an acceptable but not excessive level of risk.

Investment performance:
-0.2%

Return in FY22

$4.5 billion

Value at 30 June 2022

Future Drought Fund returns and target benchmarks
Period to 30 June 2022 Return
(% pa)
Target return1
(% pa)
From inception2
(1 April 2020)
7.5 5.6
One year -0.2 8.1

Notes: 

1 CPI + 2.0% to 3.0% pa over the long term, with an acceptable but not excessive level of risk

2 Prior to inception the Future Drought Fund was in an initial transition period from 1 September 2019 to 31 March 2020 with a return of 0.7% against a target return of 0.6%

Emergency Response Fund

The Emergency Response Fund (ERF) was established in December 2019 to support communities impacted by natural disasters.

Investment Mandate:
CPI + 2.0%–3.0% per annum

To achieve an average annual return of at least the Consumer Price Index plus 2.0% to 3.0% per annum over the long term, with an acceptable but not excessive level of risk.

Investment performance:
-0.1%

Return in FY22

$4.5 billion

Value at 30 June 2022

Emergency Response Fund returns and target benchmarks
Period to 30 June 2022 Return
(% pa)
Target return1
(% pa)
From inception2
(1 April 2020)
7.5 5.6
One Year -0.1 8.1

Notes: 

1 CPI + 2.0% to 3.0% pa over the long term, with an acceptable but not excessive level of risk

2 Prior to inception the Emergency Response fund was in an initial transition period from 12 December 2019 to 31 March 2020 with a return of 0.4% against a target return of 0.3%

DisabilityCare Australia Fund  

The DisabilityCare Australia Fund (DCAF) was established in July 2014 to help fund the National Disability Insurance Scheme (NDIS), which will support a better quality of life for Australians with a significant or permanent disability, and their families and carers.

Investment Mandate:
BBSW + 0.3% per annum

To achieve a benchmark return of the Australian three-month bank bill swap rate plus 0.3% per annum, calculated on a rolling 12-month basis.  Investments must minimise the probability of capital loss over a 12-month horizon.

Investment performance:
-0.4%

Return in FY22

$15.3 billion

Value at 30 June 2022

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