The Future Drought Fund (FDF) was established on 1 September 2019 by the Future Drought Fund Act 2019 (FDF Act). The FDF enhances the Commonwealth’s ability to make arrangements with, and grants to, persons and bodies in relation to drought resilience, preparedness and response. On establishment, the FDF was credited with the balance of the previous Building Australia Fund, which has now been closed.
The Drought Minister is required to issue a Drought Resilience Funding Plan and all funding decisions must be consistent with the Plan. The Future Drought Fund Consultative Committee will advise the Minister for Drought on both the Funding Plan and the design of programs and the Drought Minister must have regard to advice from the Regional Investment Corporation Board, and comply with the Drought Resilience Funding Plan before making an arrangement or grant. Payments from the FDF can be made from 1 July 2020.
Legislation
The FDF Act gives effect to the following:
- Establishment of Government bodies: the Future Drought Fund Consultative Committee (Consultative Committee);
- The Consultative Committee is responsible for advising the Drought Minister about a draft Drought Resilience Funding Plan and about whether the proposed design of the program of arrangements or grants to be made are consistent with the Drought Resilience Funding Plan.
- Investment Mandate: the responsible Ministers are required to issue at least one investment mandate to the Future Fund Board of Guardians (Future Fund Board).
- Crediting amounts to the FDF: the responsible Ministers may, by writing, credit the FDF Special Account with a specified amount or with specified instalments.
- Debiting amounts from the FDF: from 1 July 2020, and each subsequent financial year, the Finance Minister must, in writing, transfer $100 million from the FDF Special Account to the Agriculture Future Drought Resilience Special Account to pay amounts payable by the Commonwealth under arrangements relating to drought resilience and to make grants relating to drought resilience.
Investment Mandate
The responsible Ministers must give the Future Fund Board at least one written direction about the performance of the FDF investment functions. Before formally issuing an investment mandate direction, the responsible Ministers must invite the Future Fund Board to make a submission on the draft investment mandate. Should there be a submission, it is tabled together with the investment mandate in both Houses of the Parliament.
The Future Drought Fund Investment Mandate Direction 2019 was issued on 15 November 2019. It requires the Future Fund Board to adopt a benchmark return of the Consumer Price Index + 2.0 per cent to 3.0 per cent per annum, net of investment fees over the long term.
In targeting this benchmark return, the Future Fund Board must determine an acceptable but not excessive level of risk for the fund, including having regard to the plausible capital loss from investment returns over the forward three year period. The Government acknowledges that targeting the long-term benchmark return implies accepting the risk of capital losses, in adverse markets, that may be 15-20 per cent of the portfolio over a three year period.
Investment Performance and Financials
The Future Fund Board publicly discloses the FDF asset allocation and investment returns in its quarterly portfolio updates.
Financial performance since inception to 31 March 2024
| $millions1 | |
|---|---|
| Total Credits | 3,968 |
| (Plus) Net Earnings2 | 1,274 |
| (Equals) Total Credits and Earnings | 5,242 |
| (Less) Debits (drawings)3 | 400 |
| (Equals) Balance | 4,842 |
Notes:
1. Data may not sum due to rounding.
2. Earnings are net of investment and administration fees incurred by the Board.
3. This amount represents debits made for policy purposes under the relevant Act.
Quarterly performance result to 31 March 2024
| Nominal Return | Benchmark Rate1 | |
|---|---|---|
| 1 Year | 9.5 | 5.6 |
| From inception2 | 7.3 | 6.0 |
Notes:
1. The quoted benchmark rate of return follows the relevant investment mandate direction.
2. Inception was 1 April 2020.
Investment performance
| Year | Nominal Returns (Per cent) | Benchmark Rate1 (Per cent) | Total Balance of Fund as at 30 June ($ 'millions)2 |
|---|---|---|---|
| 2019-20 | 3.4 | N/A | 4,133 |
| 2020-21 | 14.0 | 5.8 | 4,601 |
| 2021-22 | -0.2 | 8.1 | 4,492 |
| 2022-23 | 4.7 | 8.0 | 4,597 |
Notes:
1. The quoted benchmark rate of return follows the relevant investment mandate direction.
2. Closing balances are sourced from Finance's annual financial statements.
Credits to the Future Drought Fund
The following table provides a history of credits to the FDF with links to the associated documentation.
| Summary of Credits | |||
|---|---|---|---|
| Date | Source of Funds | $million (AUD) | Documentation |
| 1 September 2019 | Uncommitted balance of the Building Australia Fund | 3,968 | Future Drought Fund Act 2019 |
| Total Transfers | 3,968 | ||
Debits (Disbursements) from the Future Drought Fund
From 1 July 2020, and each subsequent financial year, the Finance Minister must, in writing, transfer $100 million from the FDF Special Account to the Agriculture Future Drought Resilience Special Account for the purpose of making payments under arrangements and making grants related to drought resilience, preparedness and response.
Annual Payments (Debits) from the Future Drought Fund
Financial Year | Debit ($m) |
|---|---|
| 2020-21 | 100 |
| 2021-22 | 100 |
| 2022-23 | 100 |
| 2023-241 | 100 |
Notes:
1. As of 31 March 2024.
