The NSW government has announced the NSW Generations Fund (NGF), a world-first sovereign wealth fund designed to help the government maintain long-term sustainable debt levels consistent with a triple-A credit rating, while generating returns that can be reinvested into local communities.
The NGF will be seeded with an initial $3 billion under the 2018-19 state budget. The dual-purpose fund will then grow through investment earnings and future contributions, including the government’s residual interest from the planned sale of its 51 percent share in Westconnex.
The future fund will be managed by the NSW Treasury Corporation, the state’s financial markets partner that also manages the NSW Infrastructure Future Fund and the Social and Affordable Housing Fund.
However, it is unclear exactly how and where Tcorp will invest the money, leaving room to speculate that it has the potential to end up like Future Fund, the national sovereign wealth fund chaired by former treasurer Peter Costello, which contributed to Blackbird Venture’s recent $225 million funding round.
BlueChilli chief financial officer and head of venture capital Luther Poier said while it’s still early days, he’s optimistic that based on other sovereign wealth funds such as the Future Fund, and those established overseas in Alaska, United States and Alberta, Canada, that some of the NGF amount will be invested into more venture capital.
“If you look at the strategic allocation of most sovereign type funds, they tend to follow standard strategic allocations where you would find anywhere from 20 to 25 percent of the whole fund being allocated to what those in the investment community would think of as alternative investments, which includes hedge funds, private equity funds, and venture,” he said.
“If we take a look at other funds like the one in Alaska or Alberta, I think they put about 10 percent of the total amount into venture. So, if we look at the NSW fund, we can reasonably expect them to put about $300 million into venture capital. Whether that happens, it’s hard to say. But it would be fantastic for the NGF to follow very standard strategic allocation models and allocate it into large early-stage venture.”
As the NGF grows, up to 50 percent of investment returns will support local communities through the newly formed My Community Dividend initiative.
Under this initiative, each electorate will receive approximately $300,000 per year to deliver new projects in their local area, including playgrounds, community mobility services, public gardens, upgrades to local sporting facilities, public artworks and festivals, programs for at risk youth, and healthy lifestyles initiatives.
NSW residents over the age of 16 will be able to nominate and vote online for the projects that they want to see funded.
Treasurer Dominic Perrottet said governments have an obligation to leave finances in a better position for future generations, and the NSW Generations Fund would be able to further secure the state’s finances.
“It will harness the unprecedented strength of our balance sheet – to offset debt and insure against the $17 billion fiscal gap forecast by 2056. Securing our State’s finances today – and into the future. And ensuring our children can weather the storms ahead,” he said.