This week in asset owner history: Future Fund aims for A$200 billion AUM by 2026

Five years after the sovereign wealth fund announced a nine-year timeline to grow its assets by more than A$67 billion. Despite achieving this goal ahead of schedule, the target has moved.
This week in asset owner history: Future Fund aims for A$200 billion AUM by 2026

Five years ago, the Future Fund revealed its expectations for its asset base to grow to over A$200 billion ($158.09 billion) by 2026, after receiving assurances from the Australian government that it would not draw down upon these assets for at least nine years.

While the fund has hit its projected assets under management (AUM) four years ahead of schedule, the target has moved. 

At a quarterly results briefing held on August 30, 2017, in Melbourne, Peter Costello, chair of the Future Fund, said the federal government had assured the sovereign wealth fund that it would not withdraw any assets from it for at least nine years.

Costello said he expected the fund’s assets to grow by at least A$67 billion by 2026, from its total of A$133 billion in 2017.

“If there are no withdrawals until that time, the fund could cover all unfunded superannuation liabilities of the country and essentially would continue through the whole of this century,” he said.

By the end of the second quarter of 2022, the Future Fund had increased its base assets to A$204 billion but new figures reported on August 31 show the assets have once again dipped just below this mark amid extremely volatile and challenging market conditions.

Source: Future Fund

“Markets are volatile, and our focus right now is preserving capital, during a period where inflation interest rates are rising and asset valuations are a challenge, and then to investing into what we hope will be a better returning environment,” Raphael Arndt, CEO of the Future Fund Management Agency told AsianInvestor.

Raphael Arndt,
Future Fund

Arndt explained the purpose of the Future Fund’s establishment 15 years ago was to offset the unfunded pension liabilities the Australian government had, and there were no assets set aside to counter that requirement at the time.

The government seeded the Future Fund A$60.5 billion in 2006 to invest and try to offset that liability, and today, that has grown to around A$200 billion.

“We've added roughly A$134 billion of capital with no further inflows, and our discussions with the previous government around the drawdown schedule were that if the drawdowns were deferred, we were confident that by 2026, we would be able to reach a size where we could fully offset the unfunded pension liabilities, and therefore meet those pension obligations so that they would not be a drag on future taxpayers,” he said.

However, despite the sovereign wealth fund delivering strong returns of approximately 9.7% per annum over the last ten years, the pension liabilities have increased too, said Arndt.

“The discount rate the government actuary uses to value them has fallen along with the government bond rates and will now be rising. But a recent government report published just a few months ago indicated that their expectation is still that the Future Fund will reach a scale by 2029/2030 to fully offset that liability, which has grown to above A$250 billion now,” he said.

The Future Fund’s mission remains focus on this task, and Arndt reiterated that currently the SWF is trying to protect its portfolio in an uncertain macro-economic environment which is “not easy".

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