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Our investment beliefs are at the core of how we invest. These beliefs shape the way we interpret each fund’s investment mandate and its objectives, and how we reach investment decisions.
We believe that:
- Success for the Future Fund, the Medical Research Future Fund and the Aboriginal and Torres Strait Islander Land and Sea Future Fund is achieving returns over rolling 10-year periods in accordance with the benchmark return of the respective mandates, while avoiding excessive downside risk.
- Success for the Nation-building Funds and the DisabilityCare Australia Fund is achieving returns over rolling 12-month periods in accordance with the benchmark return of the respective mandates, while minimising the probability of capital losses over a 12-month horizon.
- The Board is ultimately responsible for all investment decisions. The Board’s role is to act as if it is the owner of the funds which belong to the Government on behalf of the Australian people.
- The Board must ensure all parties involved in the management of the funds, both internal management and external service providers, are as aligned as possible to delivery of success as defined above.
- The likelihood of meeting investment goals is directly related to the time, expertise and organisational effectiveness applied to decisions. Moreover, it is critical that a high quality and clear governance framework, incorporating adequate time and diversity of view, is in place.
- Portfolios are most efficiently managed as a whole, rather than a collection of sub-portfolios.
- Risk management should emphasise qualitative considerations, including a deep understanding of the investment environment. Quantitative measurement is important in supporting and testing this process.
- Investment risk is not well captured by a single metric, and there are additional risks that must be assessed and managed, such as liquidity, operational, counterparty and reputational risk.
- Focus should be on appropriate exposure to market risk factors because these are a stronger driver of long-term total portfolio risk and return than skill-related risk.
- A higher expected return per unit risk (investment efficiency) can be obtained from a broadly diversified allocation across different return drivers.
- Prospective returns and risks vary materially over time in a way that is at least partially observable and hence exploitable. The amount of risk taken should therefore be managed dynamically as conditions change.
- Being long-term funds, the Future Fund, the Medical Research Future Fund and the Aboriginal and Torres Strait Islander Land and Sea Future Fund can invest in illiquid assets where illiquidity is appropriately rewarded, providing opportunities to increase returns.
- Markets can be inefficient to an extent that skillful management can add value after fees. Such ‘net alpha’, being uncorrelated with other return streams, is extremely valuable to the total portfolio.
- The management of costs is very important to maximising returns. The Board will seek to lever the Fund’s scale and market standing to reduce costs.