Lessons of the Future Fund

We can learn some important financial strategies from Australia’s sovereign wealth fund, writes Anthony Keane

THE Future Fund manages almost $150 billion of taxpayers’ money and most Australians have no idea what it does with it.

Australia’s sovereign wealth fund, created to pay public servants’ superannuation pensions, has consistently beaten its target investment returns and can teach people important financial lessons.

Number one is diversifying your assets, and looking beyond the obvious investments of shares and property that most Australians gravitate towards.

Less than 6 per cent of the Future Fund’s money sits in Australian shares while only 7 per cent is in property, according to its latest portfolio update.

Instead, it puts larger amounts into global shares, private equity, debt securities, infrastructure and even cash.

Another key lesson is looking long term and not making kneejerk reactions to financial market volatility. By thinking like the Future Fund or large super funds, small investors can avoid selling out at the worst possible time.

Midsec Financial Advisors managing partner Nick Loxton said the Future Fund had an investment time frame spanning decades, and this could improve stability and financial returns.

“They can buy unlisted assets, take a 30-year view and not worry about it,” he said. “Mums and dads will panic if something moves in a few months. Another major difference is that for retail investors too much emotion gets in the way.

“They are sometimes too scared to take profit – what if it goes higher? What about tax? Then they ride it back down. Even though they know they can’t pick the top and the bottom, they still seem to try.”

The Future Fund was originally set to start paying out money to retired public servants from 2020, but the government has pushed that back to at least 2026-27.

AMP Capital head of investment strategy Shane Oliver said the fund’s long-term approach enabled it to invest more into private equity and large infrastructure assets.

“It’s more diversified than most investors would go with,” he said.

Dr Oliver said the fund also invested in more “real assets” that were not traded on financial markets so, “when markets fall, like they did last year, you are not exposed”.

The Future Fund puts four times as much money into global equities than it does Australian equities.

“They have looked beyond Australia to see where the opportunities are,” Dr Oliver said. “Many individual investors look to things they regard as familiar.”

The Future Fund does respond to market conditions.

In last month’s update, chief executive officer David O’Neal noted “rising risks around the economic cycle and geopolitics”.

“We have continued to gradually reduce risk in the fund’s portfolio,” he said.