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Australian Government Future Fund

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Industry  Investments
Total equity  A$117.15b (FY 2015)
Headquarters  Melbourne, Australia
Founded  2006
Revenue  15.6 billion AUD (2015)
Type  State-owned enterprise
Net income  A$15.61b (FY 2015)
Website  www.futurefund.gov.au
Founder  Peter Costello
Total assets  118.4 billion AUD (2015)
Number of employees  129 (2016)
Australian Government Future Fund wwwswfinstituteorgwpcontentuploads201005fu
Key people  Peter Costello (chairman) David Neal (managing director) Gordon McKellar (COO) Paul Mann (CFO)

The Australian Government Future Fund is an independently managed sovereign wealth fund into which the Australian Government deposits funds to meet the government's future liabilities for the payment of superannuation to retired civil servants of the Australian Public Service. Its investment decisions are made at arm's length from the executive. At 30 June 2016, it was valued at A$122.8 billion.

Contents

The stated aim of the fund is to hold A$140 billion by 2020; which would fund A$7 billion in superannuation payments each year from the federal budget. Withdrawals from the fund to pay superannuation benefits can only take place once the superannuation liability has been fully offset or 1 July 2020, whichever is the earlier.

Purpose

The purpose of the Australian Government Future Fund is to fully fund the future superannuation payments of public servants, which currently come from the federal budget.

The Future Fund Board is currently also responsible for five other Nation-Building Funds:

  • Building Australia Fund – An infrastructure fund to improve and create major infrastructure projects (including road, rail, ports and broadband). At 30 June 2016, it was valued at A$3.7 billion.
  • Health and Hospitals Fund – A health infrastructure fund to provide increased spending on hospitals and medical equipment. At 30 September 2015, it was valued at A$459 million.
  • Education Investment Fund – A fund to provide capital investment in higher education and vocational education and training. At 30 June 2015, it was valued at A$3.7 billion.
  • DisabilityCare Australia Fund – A fund to fund the National Disability Insurance Scheme. The Fund receives contributions from the 0.5% increase in the medicare levy from 1 July 2014. At 30 June 2016, it was valued at A$6.1 billion.
  • Medical Research Future Fund – At 30 June 2016, it was valued at A$3.2 billion.
  • Governance

    Investment of the Future Fund is the responsibility of the Future Fund board of guardians with the support of the Future Fund Management Agency. The Future Fund is overseen by an independent board of guardians selected on the basis of their expertise in investment management and corporate governance. The current board composition is:

    ^a Hon. Costello was initially appointed as a Guardian on 18 December 2009 for a term of five years and appointed as chair with effect from 4 February 2014 for a term of five years

    The Board was chaired by David Murray AO between 2006 and 2012. Amidst some controversy it was announced that David Gonski would succeed Murray as independent non-executive chairman when Murray's term expired on 3 April 2012. At the same time, Steve Harker, an investment banker from Morgan Stanley in Australia, replaced Brian Watson as a Guardian. David Gonski chaired the Board until January 2014 when it was announced that he would leave to chair the Australia and New Zealand Banking Group. Costello was appointed the interim chair until the announcement of his permanent chairmanship in February 2014.

    History

    On 11 September 2004, the Federal Treasurer, Peter Costello, announced that the Future Fund will be established following the 2004 federal election. Some economists have questioned whether the government can save money this way and have likened it to saving one's own IOUs. The Future Fund Act, 2006 (Cth) received Royal Assent on 23 March 2006. On 5 May 2006, A$18 billion derived from government surpluses and income from the sale of a third of Telstra in its ongoing privatisation, was deposited into the fund. On 28 February 2007, the government transferred the Commonwealth's remaining 17% stake in Telstra, valued at A$8.9 billion, into the Fund. These contributions and transfers increased the Fund to over A$50 billion by the end of the 2006-2007 financial year.

    In March 2007, the opposition Labor Party announced it would withdraw A$2.7 billion from the Future Fund to finance the National Broadband Network, an initiative to install broadband internet infrastructure across Australia, if it won the 2007 election; this proposal prompted government ministers to proclaim that Labor intended to "raid" the Future Fund for their own means. Labor later indicated that the use of any funds from the Future Fund towards a national high speed broadband network will have to comply and meet all requirements of any commercial investment. This included producing a commercial rate of return on the invested funds, with all profits being returned into the Future Fund allowing further investment.

    In May 2007, it was revealed that the Chicago-based Northern Trust Corporation had won a competitive tender process to manage the Fund. Rick Waddell, President and Chief Operating Officer of Northern Trust, indicated that Australian companies did not have the expertise to manage the Future Fund. Northern Trust stood to collect A$30 million in annual fees. Controversy arose when it was realised that the Fund will be managed by a foreign bank with no base in Australia. National secretary of the Finance Sector Union Paul Schroder estimated that around 100 jobs will be lost when the US company starts managing the Fund from Singapore using staff from India. Northern Trust was linked to the Enron scandal. General Manager of the Future Fund Management Agency, Paul Costello, told a Senate estimates committee hearing that "We were not concerned that this represented a risk to us in terms of the arrangements that we were seeking to put in place with Northern Trust".

    In his 2008 Australian federal budget speech, the Treasurer, Wayne Swan announced three new "Nation-Building Funds", also to be managed by the Future Fund Board. These included a $20 billion Building Australia Fund to invest in roads, rail, ports and broadband; an $11 billion Education Investment Fund, which absorbed the $6 billion Higher Education Endowment Fund set up by the previous government; and a $10 billion Health and Hospital Fund. In that budget and the following 2009 federal budget, the Labor Rudd Government promised A$41 billion to create these new funds.

    The fund become a member of the International Forum of Sovereign Wealth Funds and signed up to the Santiago Principles on best practices for managing Sovereign Wealth Funds. As a member it publishes how it adopts and implements the principles within its governance procedures.

    In May 2013, a DisabilityCare Australia Fund was established by the DisabilityCare Australia Fund Act 2013. The Fund will fund the National Disability Insurance Scheme and is also to be managed by the Future Fund Board. The Fund is to receive contributions from the increase in the medicare levy by 0.5% to a total of 2% from 1 July 2014.

    In the May 2014 federal budget, the Abbott Government announced its intention to establish the Medical Research Future Fund and the Asset Recycling Fund and to discontinue the Building Australia Fund, Education Investment Fund and Health and Hospitals Fund. These changes are subject to the passage of legislation. The Senate approved the establishment of the Medical Research Future Fund in August 2015, to be managed by the Future Fund, with interest generated going to medical research, beginning with $10 million in 2015, growing to $390m over the following three years.

    Investments in nuclear weapons and tobacco industries

    In May 2011 the Future Fund was criticized by The Age newspaper for investing A$135.4 million in 15 foreign-owned companies involved in the manufacture of nuclear weapons for the United States, Britain, France and India. Information about the investments was obtained through a freedom of information request by the International Campaign to Abolish Nuclear Weapons.

    In February 2013, the Future Fund announced it would exclude primary tobacco producers from its investment portfolios.

    Funds held under management

    The total funds held under management, as at 31 December each year, inclusive of funds held in the Building Australia Fund, the Health and Hospitals Fund, the Education Investment Fund and the DisabilityCare Australia Fund, are:

    References

    Australian Government Future Fund Wikipedia


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