Australia’s Future Fund Returns 9.3%, Beats Benchmark

Fund’s total asset value climbs to $A146 billion.

Australia’s Future Fund returned 9.3% for the fiscal year ending June 30, easily beating its benchmark of 6.1%, as the sovereign wealth fund’s total market value increased to $A146 billion ($106 billion) from A$141 billion at the end of the previous quarter, and A$133 billion at the same time last year.

The fund reported three-, five-, and 10-year annualized returns of 7.6%, 10.4%, and 8.7%, respectively, outpacing its benchmark, which had three-, five-, and 10-year annualized returns of 6.0%, 6.3%, and 6.6%, respectively.

“The short-term outlook is for a continuing period of sustained synchronized growth, but over the medium to longer term, a number of risks remain and continue to evolve,” Peter Costello AC, chair of the Future Fund Board of Guardians, said in a release. “Inflationary pressures may soon emerge in the US, and as interest rates around the world begin rising towards more normal levels, we expect to see downward pressure on asset prices.”

The fund said that since its creation in 2006, investment returns have added more than A$85 billion to the original contributions made by the government, which were A$60.5 billion at the time. No contributions have been made to the fund since 2008.

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The asset allocation of the fund as of the end of June was 25.5% in global equities, of which 18.2% was allocated to developed markets, with 7.3% to emerging markets; 15.4% in alternative assets, 15.1% in cash, 14.1% in private equity; 8.9% in debt securities, 8.0% in infrastructure and timberland, 6.7% in Australian equities, and 6.4% in property.

The Medical Research Future Fund returned 4.7% for the fiscal year ending June 30, ahead of its benchmark’s return of 3.0%.

“During the year we made important changes to position ourselves for the decade ahead,” CEO David Neal said in a release. “We are continuing to strengthen our investment, technology and risk capabilities as the assets we manage continue to grow.”

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Treasury Dept. Approves Benefits Reduction for Two Pension Funds

Total number of funds cleared to enact benefits reductions rises to seven.

The US Treasury Department has approved benefits reductions for The Western States Office and Professional Employees Pension Fund, and the Ironworkers Local 16 Pension Fund.

The Treasury Department has so far approved seven pension fund applications for a reduction in benefits and rejected five under the Multiemployer Pension Reform Act of 2014 (MPRA), with 10 applications currently under review.

For the Western States Office and Professional Employees Pension Fund of Portland, Oregon, the third time was the charm, as it had previously withdrawn two applications for benefits reductions. The plan’s accepted benefit suspension proposal reduces all participants’ benefits earned by 30%, subject to the limitations on benefit suspensions. The suspension does not treat categories or groups of participants and beneficiaries under the plan differently from one another, except when required by law.

The plan was determined to be in critical and declining status for the plan year beginning Jan. 1, 2018, and was projected to become insolvent during the 2036 plan year without the reductions.

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 With the reductions, the fund estimates that its funded percentage will rise to 96.54% by the end of 2057, from 63.20% as of the plan year beginning April 1, 2018. Its estimated assets as of April 1 were $330.2 million, against $522.4 million in liabilities.

The recovery plan “will stabilize the pension plan’s finances and allow it to continue to pay benefits to all participants in the future,” said the fund in a notice to participants. “However, a shared sacrifice is required, as most plan participants will see benefit reductions.”

And the second time was the charm for the Ironworkers Local 16 Pension Fund of Towson, Maryland, whose first application for a reduction in benefits was rejected by the Treasury Department in 2016 for failing to satisfy the statutory criteria for approval.

The fund was certified to be in critical and declining status for the plan year beginning Jan. 1, 2017, and had a funding percentage of 64.2% at the time.  The plan’s actuary has determined that if the benefits are not reduced as proposed, the fund will become insolvent in 2032.

The fund’s recovery plan calls for participants’ benefits to be reduced by a fixed percentage, which averages out to a 20% reduction per participant, with older participants receiving a lower reduction, and younger participants receiving a higher reduction on average. The reduction is calculated by multiplying the number of months between age 80 and the participants’ age as of Oct. 1 by a 0.125% reduction rate for retirees and terminated vested participants, and 0.0625% for beneficiaries. Participants 80 years or older as of Oct. 31 will not have their benefits reduced.

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