Future Fund Makes Most Of Cash Crisis

The Age

Thursday April 24, 2008

Vanessa Burrow

THE Future Fund is taking advantage of the global shortage of cash by investing in debt markets, rather than focusing on Australian equities.

The fund, which was set up in April 2006 to help the Government pay for the unfunded superannuation liabilities of public servants, has almost $50 billion in cash plus about $10 billion in Telstra shares.

Future Fund general manager Paul Costello, speaking in Melbourne at a Committee for Economic Development of Australia lunch, said that about a quarter of the money had been invested by the early part of the year.

Of the money invested in the sharemarket, about a third was in Australian equities, with the rest in global equities.

But Mr Costello said the Future Fund had chosen a different path about the time the global credit crisis emerged late last year.

"We noticed what was happening in the world . . . we sensed a change," he said.

The new environment prompted Mr Costello and his colleagues to look to the debt markets for opportunities.

"The terms improved materially in a short period of time," he said.

"(We are) a cashed-up supplier of liquidity in a market that is relatively short of providers of liquidity."

Unlike some managed funds that have a mandate to invest in certain stocks, such as those included in the S&P/ASX 200 Index, the Future Fund has no investment guidelines.

Its mandate states that it must produce returns 5 percentage points above the inflation rate on a 10-year rolling basis and that management may take "acceptable but not excessive risk".

The fund, which has until 2020 to make its money, does not report its results to the market regularly. But Mr Costello said more detail would be available in the annual report, to be published after July 1.

The report may also shed light on what the sovereign wealth fund plans to do with its 16% stake in Telstra, shares that have been placed in escrow until the end of the year.

The Future Fund employs about 45 people, who also oversee the Higher Education Endowment Fund. However, Mr Costello said the smaller $6 billion fund was invested in cash-like securities until the Government finalised its mandate.

Unlike the Future Fund, which will pay out a lump sum in many years, the Higher Education Endowment Fund was formed to make annual distributions, which will pay for capital works in universities.

LINK

? www.futurefund.gov.au

© 2008 The Age

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