Future Fund chairman Peter Costello has hinted the sovereign wealth fund could possibly start managing money on behalf of superannuation funds.
While ruling out managing retirement savings directly, Mr Costello said that if a super fund wanted the Future Fund to manage some of its money, that could be possible.
However, he said that the money would have to be managed separately as the Future Fund is “legally a sovereign fund and, therefore, we cannot mix private monies into it”.
Mr Costello made the comments while announcing the Future Fund produced a 8.7 per cent return for the year to June 30, 2017.
For the past 10 years, which is almost the life of the fund, it is has produced an average annual compound return of 7.9 per cent.
Over the same period, balanced investment options – the options that most workers have their super with – returned less than 6 per cent.
“The Future Fund continues to perform well and has exceeded its benchmark return objective,” Mr Costello said.
“Investment returns have added over $73 billion to the original contributions from government of $60.5 billion,” the former federal treasurer and current chairman of Nine Entertainment, said.
The government recently lowered the fund’s return objective to inflation plus 4 percentage points, a reduction of half-a-point, to reflect low interest rates around the world.
It has also said that it will not withdraw money from the fund for the next 10 years.
Ian Silk, the chief executive of AustralianSuper, said the Future Fund has strong investment performance, but managing money on behalf of a client, like a super fund, is different to managing a sovereign wealth fund.
The Future Fund can invest in the knowledge that there will be no withdrawals from the fund for at least the next decade, he said.
Because of the very long investment time-frame, the Future Fund can afford a bit more risk in its portfolio, which can produce higher returns.
Super funds have to invest in way that provides liquidity to be able to pay members withdrawals.
Mr Costello said that would allow the fund to be able to pay all of the unfunded liabilities of federal public servants. He added that the fund would still likely have assets for the remainder of this century.
“I would be very confident that if there is no drawdown before 2026 the assets of the Future Fund would be sufficient to meet any unfunded liabilities for the century,” he said.
The fund’s chief executive, David Neal, said the fund’s asset allocation had changed little over the year.
The fund has maintained a cash level of about 20 per cent and the fund can quickly take advantage of any investment opportunities that arise, Mr Neal said.
On the outlook, Mr Neal said economies around the world were doing alright, but that “it’s more the structural backdrop that concerns us”.
“The high debt levels that existed during the financial crises have not moderated, and central banks have taken on a lot of that debt,” he said.
“But at some point it [debt] still needs to paid off, and the concern is that many economies are rather hooked on low [interest] rates.”
Mr Neal is concerned that interest rates, when they do rise around the world, could have a dampening effect on asset prices.
He said that asset prices were also reliant on those low rates.
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