Future Fund on risky course to weather financial storm

THE Federal Government's $60bn Future Fund will have to take on greater risks to meet targets, the fund's management says.

Risky ... the head of the fund's management says its portfolio was "definitely" invested in a more risky way than when the fund began / File

Fund's risky course to weather storm

THE Federal Government's $60 billion Future Fund will have to take on greater risks to meet its long-term growth target despite the global financial crisis, the head of the fund's management agency says.

Paul Costello has told a Senate estimates hearing the fund has been forced to buy risky assets to generate a minimum return of inflation plus 4.5 per cent.

"We are in the business of having to buy risky assets," Mr Costello said.

"We're trying to buy them at the very best price, but the only way we're going to be able to generate a minimum return of inflation plus 4.5 per cent is by buying well assets which do have this risk attached to them because they also have the commensurate return."

The Future Fund was set up in 2006 by the former Howard Government to assist future governments meet the cost of public sector superannuation liabilities.

It currently has assets worth $60 billion.

Mr Costello said the fund's managers were now focusing on assets outside of debt markets.

"We're really starting to see a lot of very high-quality assets ... starting to come on the market," he said.

"That's where most of our future development will be, because debt markets alone, while they've been very productive for the fund for its first year or so, longer term that's not where we're going to see the returns that we need to deliver on the government's objectives."

The management agency chief executive said the fund's portfolio was "definitely" invested in a more risky way than when the fund began, as it had more assets that could rise or fall in value and less cash.

"It's fair to say that will continue to be the situation as we continue to roll out this program."

But purchases made in the current financial environment would generate higher returns than those made earlier because of where they started, Mr Costello said.

"Despite the challenges of this environment ... we remain strongly of the view that the Future Fund will come through this in a very strong way, that it will deliver to government over periods of time."

Senator Nick Sherry, representing Finance Minister Lindsay Tanner, told the estimates hearing the investment mandate set up by the former coalition government, the fund's board and its governing legislation were all unchanged despite the turbulent economic times.

"All the provisions that were set down by the former government have remained unchanged by the current government and there are no plans to alter that," Senator Sherry said.