The Future Fund has a new statement of expectations and new investment mandate.
From the government press release:
The new Investment Mandate will require the fund to consider Australia’s national priorities in its investment decisions, where possible, appropriate and consistent with strong returns. These national priorities are:
- Increasing the supply of residential housing in Australia.
- Supporting the energy transition as part of the net zero transformation of the Australian economy.
- Delivering improved infrastructure located in Australia including economic resilience and security infrastructure.
Some are saying it’s just wording and won’t mean much. Others have suggested there wouldn’t be a change in wording unless the government was intending to lean on the Future Fund and direct them into the areas specified, specifically whatever their pet projects were. Plenty have opined if such investments were worthy, then the future fund would already be investing in them.
The future fund already invests in Australian infrastructure, such as several Australian airports. The new Chair Greg Combet made similar points in the Australian Financial Review around infrastructure, data centres, and small green companies where they already have investments.
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.
There is already active management, along with tilts towards sectors the investment committee forecasts will be the winners in the future. The Future Fund also excludes certain companies. Being some weapons manufacturers and specifically all global tobacco companies.
The Future Fund probably wouldn’t have lost much in the way of equity growth from divesting tobacco stocks just over a decade ago. And while they’re not growth stars, global tobacco names do churn out some of the highest dividends in the equity world, so it hasn’t been without cost.
With that in mind, no one can say the Future Fund doesn’t make active decisions in the attempt to meet its return goals. It does leave the question hanging, if it’s already investing in Australian infrastructure and renewable energy companies (albeit not housing), why did there need to be changes to the mandate at all?
We can’t offer any insight. As above, there’s plenty of speculation that can be read elsewhere on the topic, but there is a side issue that probably won’t get much attention. It’s how the average person, even more specifically, how the average investor might perceive such changes. Australians are now significant investors. If a person just earns the average wage from sometime in their early 20’s, to sometime in their mid 30’s, it means they’re then likely to have a six-figure sum built up in superannuation.
Having that financial stake build up comes with questions about how it should be invested and who should be investing it. It goes from an irrelevance, to a person having an substantial amount of equity, and concern with what happens with that equity.
There’s a building distrust of authority, institutions, and government globally. As we’ve noted previously, this now extends to asset managers. The online world is part of the real world now. What people say online is what they believe in real life. A growing number of people now believe investment managers like Vanguard and Blackrock are scheming to takeover the world. Simply because as index managers, they blindly own a notable stake in most every company – on behalf of the investors who own their managed funds and ETFs.
There’s also a number of people with large followings online who are happy to peddle “concern” for more views or persuade people from a political angle. It’s not outlandish to suggest all this can lead to financial loss. It’s just a fact some investors are not well versed. They believe in conspiracies and they’re susceptible to scams. It means they’re vulnerable to losing their savings.
Scams are as much about who you don’t trust, as they are about who you do trust. If someone believes they can’t trust established managers, historically well-run funds, and tax advantaged retirement structures, then they are potentially easy game for the worst types of people.
We’ve seen it personally, and it appears in the news on a daily basis. And for every person who is done over and bold enough to be featured in the news regarding their loss, there are a magnitude more who are too ashamed to identify themselves. But they do show up in the stats.
According to the ACCC, Australians lost $1.3 billion to investment scams in 2023, but they also note:
Not all Australians report scams. Despite the existence of several reporting platforms, we know the extent and impact of scams is under-reported and some cohorts are markedly underrepresented in official reporting figures. The National Anti-Scam Centre is conducting more work to encourage reporting from all communities, and to reduce the stigma of scams so that more people are comfortable to report them.
How does this relate to the Future Fund? There’s a quick line drawn by some from the Future Fund to everyone’s superannuation, as the Future Fund is set up for the government’s superannuation obligations. There were worries on online forums after the Future Fund announcement around “what this potentially meant for superannuation”, and” does it change peoples’ strategies?” Some investors are already wary of any suggestion their superannuation should be used for “nation building” exercises. They’re even more wary of their superannuation being pointed towards climate goals and renewable energy.
Two areas that are talked about more and more in the media. Former ASIC Deputy Chair, retirement expert, and now ESG adviser Jeremy Cooper, was cheering the change to the Future Fund’s mandate. Cooper has also been a vocal proponent of picking climate winners with superannuation.
Our super system can walk, and chew gum at the same time, and we must leave nothing in the way of the allocation of its capital to profitable investments in renewable energy and other climate-saving activities.
Investors who aren’t interested in “climate-saving activities” despise hearing this stuff. It increases distrust and fosters a belief that investors’ money is not their own. It encourages the setup of SMSFs by investors who are better served by being hands off. Worse, it leaves these investors open to suggestion they need more control over their retirement savings. An idea continually pushed by promoters who are looking to siphon money for their own dubious and high-risk investments.
It’s a dangerous mix. Governments need to be careful of any perception superannuation could be pushed down the same path as the mandated change to the Future Fund. Just focus on the best risk adjusted returns. Otherwise, the real losers will be those investors who are easily spooked and open to suggestion by scammers.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.
