MELBOURNE The Future Fund could reach its target of A$140 billion (US$108.7 billion) in just a few years, much more quickly than the officially forecast 2020 date, according to a study by Citigroup.
The study, by Stephen Halmarick, director and co-head of economic and market analysis at Citigroup in Sydney, was released at a seminar organized by the University of Melbournes Melbourne Business School. (All amounts are in Australian dollars unless noted.)
The Citigroup study assumes all surpluses will be tipped into the fund and that it reaches its reasonably conservative returns target of 4.5% to 5.5% above inflation.
By our estimates, the fund will be around $123 billion by June 2011; the $140 billion target is likely to be met well before 2020 and possibly as early as 2012 The Future Fund will grow from around $18 billion late last year, to near $50 billion by June 2007 $70 billion by June 2008, $83 billion by June 2009, $101 billion by June 2010 and $123 billion by June 2011, Mr. Halmarick said.
Despite some likely volatility, therefore, the Future Funds objective of a long-term 4.5(%) to 5.5% real return per year looks very achievable in the context of the investment objectives and strategies the Future Fund has been given, Mr. Halmarick said.
The government launched the Future Fund last year and transferred a further $18.6 billion on Jan. 22. It was scheduled to transfer a further $3.6 billion from last years budget late last month.
All of this money is invested in cash with the Reserve Bank of Australia, which, with funds from other agencies, has almost $50 billion in cash.
Mr. Halmarick observed the growth of the Future Fund had not yet had any impact on markets. His study argues, in fact, that the fund will be managed in such a way as to minimize market impact. In any case, even though it will be the biggest fund of its type in Australia, it will still make up only a small proportion of the entire institutional investment market.
The seminar was attended by a range of academics and funds management industry executives, including consultants from the funds adviser, Watson Wyatt Australia Pty. Ltd., as well as Frontier Investment Consulting.
Paul Costello, Future Fund chief executive, told attendees that the first investments from the fund are likely to be a range of passively managed portfolios, until an investment team is established. The fund has not yet announced the recruitment of a chief investment officer.
This story is provided by Investment & Technology, a monthly publication based in Sydney that is written for professional investors in Australia. All amounts are in Australian dollars, unless otherwise noted.