Future Fund annual return 'very strong'

The Future Fund delivered a 9.1% annual return in FY24, adding $18.8 billion to the portfolio, bringing the sovereign wealth fund's total value to $224.9 billion.

This performance lifts its 10-year average annual return to 8.3%, exceeding a mandate target of 6.9%.

Future Fund chief executive Raphael Arndt said the strong result reflects the work done over the past few years to understand and navigate significant and lasting changes in the world.

"The changes in the investment environment and the resurgence of geopolitical risks of which we have been warning for several years continue to play out," he said.

"As we have explained, our portfolio is now more robust to these events with relatively low exposure to fully priced equities, low exposure to interest rates and a range of inflation hedges in place.

"In this environment, I consider the annual return of 9.1% to be very strong."

Notably, a Future Fund's position paper from earlier this year warned that the longer-term investment environment is expected to be more complex, volatile, and ultimately more challenging for investors.

The paper said that forward-looking returns will be more difficult to earn, prompting a need to refresh how the Future Fund invests to continue meetings its investment purpose.

Arndt also noted that equity markets rallied strongly over the year, thanks in large part to the strength of the US economy and expectations that US interest rates had peaked and would soon begin to fall.

He added that private credit and alternatives also delivered strong returns, as anticipated by the fund's view that inflation and rates would remain higher and risk markets volatile.

"In a year where equities were the only strongly performing traditional asset class, many of our positions, and in particular our hedge fund portfolio, really delivered," he said.

Meanwhile, Future Fund chair Greg Combet said the long-term investment success of the fund makes a valuable contribution to Australia's finances.

"In taking up my role I have been impressed with the culture of the organisation, the capability of the team, and the investments of the fund in Australian infrastructure assets such as airports, a major port, renewable energy and telecommunications and data centres," he said.

"These are important investments in Australia's future. Building on these will be a priority for me, particularly given the investment opportunities in the energy transition.

"More broadly, the organisation has long recognised the importance of environmental, social and governance issues. Further developing our ESG capabilities, and in particular in relation to climate risks and opportunities, is also a focus for the board."