Long-term performance expectation
We expect to return at least 7.8% p.a. over any 20-year moving average timeframe.
Our long-term performance expectation can be broken down as:
|
Measures |
Description |
Expected Return |
|---|---|---|
|
Risk-free rate of return |
A risk-free rate of return representing the cost of government borrowing (the return on Treasury Bills). |
4% |
|
Excess return |
The excess return after costs in addition to the risk-free rate of return that we believe can be earned from a low cost, passive portfolio of 80% equities and 20% fixed interest. |
2.8% |
|
Value add |
The reward for activities that we undertake through active investments, where we believe the Fund can benefit from its endowments (investment advantages), and add value over and above our passive benchmark. |
1% |
|
Total |
7.8% |
Estimates of market risk vary over time. The expected return for each measure represents an averaged, equilibrium value over a 20-year timeframe.
This is not a target we aim to hit precisely; it is an expectation we aim to exceed by as much as possible.
Working to an expectation rather than a target means we focus on long-term performance, rather than short-term incentives to increase risk when returns are least rewarding.