The chair of the Future Fund has slammed critics of the sovereign wealth fund’s new mandate as “factually incorrect”.
“The Board of Guardians remains independent of government and retains its longstanding duty to maximise returns,” chair of the Future Fund, Greg Combet, said in an op-ed written for The Australian Financial Review.
Contrary to public commentary, Combet said there is nothing in the new investment mandate that requires the board to invest in the new national priority areas, only to have regard to them in performing its investment functions.
Investment decisions, he noted, will continue to be commercially based upon appropriate risk adjusted returns.
“The board will assess each and every investment opportunity on the basis of its risk and return characteristics and ability to maximise portfolio returns with acceptable risk,” Combet said.
“If there are no investment opportunities in the national priority areas with appropriate risk adjusted returns that complement the fund portfolio, the board will not invest.”
According to the chair, where the board to date has seen appropriate investment opportunities, it has already been investing in these areas. He highlighted the fund’s $12 billion of direct holdings in local infrastructure assets, such as Perth, Melbourne, Launceston and Sydney airports, and a 40 per cent holding in Tilt Renewables.
“Elsewhere in the portfolio there are investments in young companies developing new technologies for renewable energy generation, electricity grids, tracking of carbon emissions, satellite launch capabilities and waste management,” Combet said.
The chair also stressed that the board has made it “abundantly clear” to the government that its paramount objective, consistent with the investment mandate and the Future Fund Act, remains the return of at least CPI plus 4–5 per cent over the long-term with acceptable risk.
“The world has changed since the Future Fund was created in 2006. Longstanding global commitments to trade liberalisation have been replaced by escalating trade barriers. Following the fiscal expansion driven by the GFC and the pandemic, and amidst geopolitical conflict and instability, governments are increasingly looking to domestic pools of capital to aid economic resilience and national security. Australia is not immune,” Combet said.
“But factually incorrect assertions about the new Future Fund investment mandate do not serve the interests of either the fund or future generations of Australians.”
Earlier this week, Deloitte Access Economics raised concerns about the government’s recent changes to the Future Fund’s investment mandate, questioning the necessity and implications of the reforms.
According to Deloitte, the rationale for the changes is unclear, especially if the sovereign wealth fund has already been investing in these areas.
The firm also suggested the changes could erode the Future Fund’s independence, as the mandate shifts from allowing the fund’s Board of Guardians to determine strategy solely based on risk and return to considering external priorities.
“Until now, the Future Fund Board of Guardians has had sole responsibility for determining the investment strategy, as well as the asset and geographic allocation of the portfolio. That is now changing, and the Future Fund is becoming less independent as a result,” Stephen Smith, partner at Deloitte Access Economics, said.
“That is true even though the wording of the new investment mandate makes clear that having regard to these national priorities does not require the Future Fund to deviate from its obligations to maximise returns over the long term.”
Smith further said that balancing risk and return while incorporating national priorities could result in adjustments that undermine the fund’s high-performance track record.
Ultimately, he said that while Australia’s economic institutions like the Future Fund should not remain static, “any changes need to be justified and made for a specific reason”.
“Where an institution is, like the Future Fund, performing well, the bar for making changes should be set very high,” he said.
“It is not obvious that the federal government’s new investment mandate and statement of expectations for the Future Fund meet that threshold. In fact, the changes raise more questions than they answer.”
