The strength of the US economy has driven “an extremely pleasing” result for the Australian sovereign wealth fund.
The Future Fund has posted a return of 12.2 per cent in calendar year 2024, adding $26 billion to the sovereign wealth fund’s value.
This exceeded its mandate target of 6.4 per cent, while its 10-year return of 8.1 also exceeded its mandate target of 6.8 per cent.
Commenting on the news on Wednesday, Future Fund CEO Raphael Arndt said that 2024’s return strengthens Australia’s long-term financial position.
“At a record total of $237.9 billion for the Future Fund, investment returns have added $177 billion in value since it was established in 2006,” Arndt said.
According to the CEO, investment returns also helped increase the value of six other funds managed by the board to $66.7 billion, up from $60.4 billion at the end of 2023.
“This was after accounting for $790 million in payments to support various policy initiatives including medical research, the work of the Indigenous Land and Sea Corporation and drought and disaster resilience,” Arndt said.
Now, total funds managed by the Future Fund board have risen to a record $304.5 billion.
Expounding on the fund’s performance over the year, chief investment officer Ben Samild said that the “extremely pleasing result” was driven by the strength of the US economy.
According to its latest portfolio update, around $58.9 billion, or 24 per cent of the fund, is allocated to developed market global equities.
This comes as fears at the start of the year of a US and global economic downturn caused by higher for longer rates were not realised, according to Samild.
“Inflation has moderated and economic growth, trade, employment, wages and corporate balance sheets remain in good shape, underpinning another strong year for the US share market,” the CIO said.
“These conditions provided lots of opportunities for active return generation and the Future Fund benefited from increasing its allocation to international equities.”
He said that alternatives, credit, and infrastructure also made positive contributions, with returns also being bolstered by the decline in the Australian dollar, which increased the value of offshore assets.
Some of the Future Fund’s larger allocations include a 14.7 per cent allocation – or approximately $35 billion – in alternatives, 13.9 per cent for private equity, 10.4 per cent for Australian equities and 10 per cent in infrastructure and timberland assets.
In 2021, the fund released a position paper titled “A New Investment Order”, where it identified 10 major paradigm shifts that will be important for building investment portfolios in the next decade. These included deglobalisation, technological disruption, climate change, a changed inflationary regime, and a decline in sovereign bond duration in portfolio construction.
On Wednesday, Samild said that the scenarios it described in the position paper continue to play out.
“The changes that we have made to the portfolio over recent years to reflect those views have been well rewarded,” Samild said.
“The portfolio is now constructed to be more resilient to inflationary pressures and more responsive to the fast-changing world while generating attractive long-term returns.”
It was also revealed in November that the Future Fund would get a new investment mandate and statement of expectations, under which it will have to consider national priorities – including supporting the energy transition, the supply of residential housing, and infrastructure – when making investment decisions.
Moreover, the government has deferred the date at which it may draw on the Future Fund from 2026–27 until at least 2032–33.
Commenting on this, Arndt said: “This provides the foundation for the Future Fund to become an enduring institution and to continue to invest for the long term.”
The CEO said that, during the year, the fund’s new investments included a stake in the Eastlink toll road and a national portfolio of student accommodation facilities.
“We continue to evaluate investment opportunities in the Australian economy consistent with the new investment mandate,” Arndt said.
