Jim Chalmers and Katy Gallagher have announced significant changes to the Future Fund. Photo: Jim Chalmers Instagram.
The Future Fund is being future-proofed with an unprecedented new ministerial direction to ensure it invests in more green energy and in housing – but only where it’s profitable for the $230 billion fund.
Treasurer Jim Chalmers and Finance Minister Katy Gallagher have issued a joint statement to shake up focus of the 18-year-old fund.
It marks the first time a government has been so prescriptive about the fund’s investments.
“The Australian economy faces major structural shifts including from the global net zero transformation, technological and demographic change, and global fragmentation,” the joint statement read.
“The Future Fund has made clear it can play a prominent role in capitalising on these economic opportunities and supporting Australia’s prosperity.
“The fund’s primary focus will remain on maximising its returns, and at the same time, our changes will help it maximise its role in delivering for Australians in the future…”
The ministers said the new Statement of Expectations would provide guidance on operationalising the investment mandate and ensure the fund had best-practice approaches in governance, transparency and accountability.
“The government is also confirming the fund’s enduring role in strengthening the Commonwealth’s long‑term financial position and covering unfunded superannuation liabilities.”
The Federal Government has also vowed not to make drawdowns from the fund until 2032-33 at the earliest, when the fund is estimated to be worth $380 billion.
The Future Fund hasn’t been drawn down or added to by a federal government since it was established in 2006 by then Liberal Treasurer Peter Costello.
It began its existence with a $60.5 billion kickstart. Today, after additions via investments and spinoff funds, it’s worth about one-third of the Australian economy.
The new directive stresses the fund must now consider national priorities when making investment decisions, so long as they are “where possible, appropriate and consistent with strong returns”.
Residential housing supply, the energy transition to net-zero emissions, and improved infrastructure, top those priorities.
The new ministerial directive also insists the Future Fund holds fast to its primary objective of maximising returns and continue to earn four to five percentage points above CPI per annum on average.
Former Labor minister and former Net Zero Agency chair Greg Combet was appointed chair of the Future Fund in June, replacing Mr Costello who stepped down after leading the fund for 14 years.
Mr Costello, when leaving the role, urged Labor to resist such government intervention.
He told the Australian Financial Review in January that such a move could jeopardise the Future Fund’s existence.
“My greatest fear is that some government will think to itself, we’d like to start directing this money into this asset or that asset, and start using it as a political device,” Mr Costello said.
“That would kill it.”
But since taking on the role as the fund’s chair, Mr Combet has expressed his ambition for the Future Fund to invest more in renewable energy.
Mr Combet said he and the fund’s board welcomed the new ministerial direction, adding the announcement and changes would provide certainty.
“The government’s decision to defer withdrawals from the Future Fund until at least 2032-33 provides the Future Fund with the confidence to provide more focus and resources to the areas of national priority identified in the new investment mandate that align with our risk and return hurdle,” he said.
“We have also long recognised the importance of environmental, social and governance issues in our investment process and will add resources in this area.”
Original Article published by Chris Johnson on Riotact.
