The constant risk of a cyberattack on the Future Fund's investment portfolio is among its top concerns.
Future Fund chairman Peter Costello said in a portfolio update this morning that the sovereign wealth fund considers cybersecurity risk to be a major threat as it's difficult to stay ahead of attacks.
He said the fund is fortunate to be able to work with other government agencies in formulating defensive strategies and employs the most sophisticated programs to combat such threats.
"We acknowledge that the offensive is becoming more sophisticated all the time, so we regularly speak with other Australian agencies about what they're doing. The possibility of a cyberattack is one of the top three risks to our portfolio," Costello said.
The fund also works closely with its custodian, Northern Trust, to ensure the security of its assets, he added.
As at 31 December 2017, those assets have now grown to $138.9 billion, with an additional $25 billion invested across five public asset funds.
The Future Fund has consistently exceeded its benchmarks since its 2006 inception. In the 12 months to 31 December 2017 it returned 8.8%, beating its target return of 6.4%.
"The Future Fund continues to perform strongly. It is delivering against its objective, which is to strengthen the Commonwealth's long-term financial position. Returns have exceeded the target benchmark across all timeframes. From seed capital of $60.5 billion the fund has now earned $78 billion," Costello said.
He added that positive near-term outlooks have allowed the fund to modestly increase its risk levels, citing the ongoing success of US monetary policy tightening: "The consequence of that is that we have taken a little more risk."
During the period the fund increased its allocation in global equities, which now stands at 26.3% of the overall portfolio. Cash holdings dropped to 16.4%. This boosted it's the fund's Q2 performance to 3.3%, compared to just 0.8% in the previous quarter, chief executive David Neal said.
"As interest rates around world rise towards more normal levels, we expect to see downward pressure on asset prices. Our strategy is designed to allow us to benefit from stronger markets while avoiding excessive risk," he said.
Therefore the risk increase remains within the bounds of the fund's mandate, with Costello saying capacity for risk underscored the mandate change implemented last year.
"The Government has always been clear and we have always been clear that because this is a long-term endowment fund, it shouldn't be a high-risk fund. We are mandated to avoid excessive risk, and that's what we're working to," he said.
"I think the thinking within the Government and the fund is that now as the fund matures, we shouldn't be taking higher risk. If anything we should be reducing risk or at least keeping it where it was, a little more on the conservative side."