More information on the remarkable story of growth is available here.
Investment objective
The objectives of the Trust’s investment mission are twofold: firstly to achieve long-term appreciation of the value of the corpus, ahead of inflation, and secondly to generate sufficient income to fund the annual grant giving program and operating expenses. The Trust prioritises long-term growth in the value of the corpus to ensure support for Victorian communities in perpetuity.
The Trust’s overall investment objective is a total investment return of Consumer Price Index (CPI) + 5.5% over rolling 20-year periods. Of the total expected annual investment return, long term capital returns are targeted at CPI + 1.0% p.a. and income returns are targeted at 4.5% p.a. to cover granting and operating expenses.
Asset allocation
The Trust operates in perpetuity and cannot grant out of capital. These two features allow the corpus to have a high allocation to growth assets (86% as at 30 June 2022). The Trust maintains a high allocation to Australian equities (59% as at 30 June 2022) due to the attractiveness of refundable franking credits.
Investment performance
Compared to FY21 when the total return on the corpus was an outstanding 23.2%, FY22 was a difficult year due to increased geopolitical tensions (particularly the war in Ukraine), tightening monetary policy (as a result of surging inflation), rising global recession fears and continued restrictive COVID-19 policies in China.
Given this macroeconomic environment, the corpus generated a total return of -0.34% for FY22, significantly underperforming our long-term objective of 11.6% (CPI+5.5%). This total return of -0.34% was still a good outcome considering the ASX All Ords Accumulation Index declined 7.4% and the MSCI World Total Return declined 13.9%. The total return of -0.34% was assisted by our allocation to unlisted infrastructure, which returned +13.9% for FY22.
| As at 30 June 2022 | 1 year | 3 years | 5 years | 9 years |
| Corpus: total return % pa (including franking, net of fees) | -0.3% | 5.9% | 8.4% | 9.3% |
| Objective: CPI +5.5% pa | 11.6% | 8.7% | 8.1% | 7.8% |
| Over/(under) performance | -12.0% | 2.8% | – 0.2% | 1.5% |
In addition, the internal management of the Australian shares portfolio allowed us to take advantage of three off-market share buy-backs, resulting in a total return of +0.34% for Australian shares in FY22.
Over the longer term, it is pleasing to note that the total return on the corpus has outperformed its objective by 1.5%pa over the past 9 years. The total return objective of CPI+5.5% could be considered ambitious, albeit appropriate for a fund in perpetuity.
Excluding income returns, the value of the corpus continues to outpace inflation over the longer-term, even with inflation rising sharply over the past year. The chart below shows how the value of the corpus (which excludes income earned) has changed since 2000, and compares that with the increase in CPI + 1% (our capital return objective).
The corpus finished the year at $134.1 million, down from the all-time year-end high of $139.9 million, achieved at the end of FY21.
Responsible investment
To avoid circumstances where the Trust’s investment activities are inconsistent with the objectives of the Trust’s granting activities, the Trust has a principles-based responsible investment policy that aims to balance responsible investment with the need to generate returns in order to maintain granting capacity.
The Trust internally manages its Australian equities portfolio on a passive basis, enabling us to take advantage of our tax-exempt status (particularly franking credits) and also giving us the flexibility to screen out stocks not in line with the Trust’s vision and granting strategy. The Trust utilises the S&P/ASX50 Franking Credit Adjusted Daily Total Return (Tax Exempt) Index benchmark modified for negatively screened stocks. In FY22, the Trust negatively screened out Endeavour Group and The Lottery Corporation due to their involvement in alcohol and gambling. During FY22, the Trust’s Australian equities portfolio outperformed the benchmark by 1.7%, mainly due to participation in off-market share buy-backs.
The Trust’s developed market equity exposure is invested in the Vanguard Ethically Conscious International Shares Index Fund. This fund tracks the FTSE Developed ex Australia Choice Index which excludes companies with significant business activities involving fossil fuels, nuclear power, alcohol, tobacco, gambling, weapons, adult entertainment and conduct-related controversies.
The Trust is invested in two unlisted infrastructure funds: the Utilities Trust of Australian (UTA) and the IFM International Wholesale Infrastructure Fund. The managers of both funds are signatories to the UN Principles for Responsible Investment and have responsible investment strategies and climate change policies (net zero by 2050) which embed Environmental, Social and Governance (ESG) factors into their respective investment processes. In 2022, the UTA fund scored 94% from GRESB (an organisation that produces internationally-recognised benchmarks to track ESG performance) against a peer group average of 88% and maintained its position in the top ten globally diversified infrastructure funds globally.
The Trust is currently invested in four impact investments which aim to deliver both a market return and a measurable social or environmental return, being:
- the Murray Darling Basin Balanced Water Fund, which undertakes watering events across wetlands and funds the development of infrastructure which enables the sustainability of water delivery to wetlands;
- the COMPASS social impact bond (SIB), which seeks to improve outcomes for young Victorians transitioning from care to independent living;
- the Living Learning SIB, which provides support to 15-21 year olds not engaged in education or training and who have a mental health condition, facilitating higher levels of engagement in secondary education; and
- the Side by Side SIB, which aims to help students (prioritising Aboriginal students) in Years 1 to 4 who are chronically absent from school.
Investment management expenses
In addition to managing Australian shares internally, investment operations are undertaken internally to maximise control and minimise costs. During FY22, the total investment expenses amounted to 0.34% of the corpus, including direct investment costs incurred internally, investment consultant fees paid to Frontier and investment management fees paid to external managers of international shares and unlisted infrastructure funds.
Operating results
Revenue (excluding realised and unrealised gains on investments but including franking credits) of $14.2 million was earned on the corpus during FY22, up 176% on the $5.1 million earned in FY21. Capital Account revenue increased by $7.5 million from $0.6 million in FY21 to $8.1 million in FY22 due to the franked dividends received from participating in the Commonwealth Bank, Woolworths and Westpac off-market share buy-backs. Income Account revenue increased by $1.6 million from $4.5 million in FY21 to $6.1 million in FY22 due to the receipt of special dividends.
Operating expenses of $1.3 million were incurred during FY22 in administering the Trust to achieve its objectives and were in line with those incurred in FY21.
An operating surplus of $12.9 million was generated in FY22, significantly higher than the $3.9 million generated in FY21 due to the franked dividends received from participating in the off-market share buy-backs. $8.0 million of the operating surplus was capital in nature and remains in the Capital Account. The operating surplus on the Income Account of $4.9 million enabled $4.2 million grants to be approved during FY22. The Trust reinstated its power of accumulation, capitalising $0.5 million from the Income Account to the Capital Account. The balance on the Income Account of $2.9 million at 30 June 2022 is reserved for emergency granting, and to maintain the Trust’s granting capacity should income levels decline in future years.