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· Posted on
February 21, 2024

Australia's Future Fund is yeeting towards more risky investments 'coz the world's changin'

Australia's Future Fund think it's time to move up the risk curve to get better returns.

What's the key learning?

  • According to Future Fund's CEO, global markets are now at a turning point because everything we have relied on for the past 30 years is changing because of things like forces of globalisation, rise of the Chinese economy, energy surplus, and ultra-low interest rates.
  • Future Fund needs to overturn many of their previous investment assumptions and move up the risk curve to get better returns.
  • The risk curve is all about the tradeoff between the risk and the return of different investments.

👉 Background: Australia’s Future Fund is a sovereign wealth fund that was established in 2006. The goal of this fund is to strengthen Australia’s long-term financial position by investing in a broad range of assets. Think $193 billion worth of cash, property and even a tidbit of private equity.

👉 What happened: But now, the CEO of the Future Fund has said that the global markets are at a turning point because everything we have relied on for the past 30 years is changing. Think: the forces of globalisation, the rise of the Chinese economy, an energy surplus and the ultra-low interest rates.

👉 What else: This means the Future Fund needs to overturn many of their previous investment assumptions. And it's time to move up the risk curve to get better returns.

What's the key learning?

💡The risk curve is all about the tradeoff between the risk and the return of different investments.

  • Typically, on a risk curve, the x-axis, which is the horizontal one, represents risk level
  • The y-axis, which is the vertical one, represents the expected return

💡For example, a 90 day US Treasury bill is considered a very safe investment, which is why the return on this investment is extremely low. Whereas, investing in a brand new biotech company, is generally considered very high - but could lead to enormous returns.

💡The Future Fund has now announced that they’ve lifted risk in their portfolio overall to try to get better returns because COVID fundamentally changed politics, economics, markets, and therefore investing.

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