After delivering an impressive 7.7 per cent per annum since its inception in 2006, the Future Fund has sought to manage expectations about returns over the next decade.
The $123 billion Future Fund has released its annual report, laying out its investment strategy and outlook for the future.
Future Fund Board of Guardians chairman Peter Costello noted the Future Fund has doubled the investment that originated it in 2006.
The fund, which has had no capital injections since 2008, was originated with $60.5 billion and has earned an additional $62.3 billion, Mr Costello said.
"In the 10 years since the Future Fund was set up, it has delivered a return of 7.7 per cent per annum, exceeding its target benchmark return of 6.9 per cent," he said.
The aftermath of the 2008 global financial crisis saw "extraordinary" monetary and fiscal policy measures deployed globally, which have supported asset prices, Mr Costello said.
However, those measures are "losing their efficacy", he said – and the capacity for further stimulatory measures is "severely constrained".
Investors now face a low-return environment where government bonds are at "historically low levels", Mr Costello said.
"A 10-year government bond is priced at a return of less than 2 per cent per annum. Allowing for inflation, this means that the expected long-term real return from government bonds is around zero," he said.
Further complicating the outlook for the Future Fund, from 2020 the fund will move into its withdrawal phase.
Starting in 2020, the federal government can withdraw money from the fund equal to the value of unfunded superannuation liability payments falling due in the year in question.
"Drawing down on the Future Fund’s assets has investment implications, both in terms of the level of illiquidity that can be accepted and the returns that can be achieved in a progressively smaller and more liquid portfolio," Mr Costello said.