A number of previous studies have identified changes in the climate occurring on decadal to multi-decadal time-scales. Recent studies also have revealed multi-decadal variability in the modulation of the magnitude of El Niño–Southern Oscillation (ENSO) impacts on rainfall and stream flow in Australia and other areas. This study investigates multi-decadal variability of drought risk by analysing the performance of a water storage reservoir in New South Wales, Australia, during different climate epochs defined using the Inter-decadal Pacific Oscillation (IPO) index. The performance of the reservoir is also analysed under three adaptive management techniques and these are compared with the reservoir performance using the current ‘reactive’ management practices. The results indicate that IPO modulation of both the magnitude and frequency of ENSO events has the effect of reducing and elevating drought risk on multi-decadal time-scales. The results also confirm that adaptive reservoir management techniques, based on ENSO forecasts, can improve drought security and become significantly more important during dry climate epochs. These results have marked implications for improving drought security for water storage reservoirs. Copyright © 2004 John Wiley & Sons, Ltd.