Future Fund Hunts Deals

Sun Herald

Sunday September 21, 2008

By JOSH GORDON

THE Federal Government's $64 billion Future Fund is looking to cash in on the chaos gripping financial markets by buying slices of discount companies and bargain shares.

The fund, created by the previous government to cover the cost of public servants' superannuation, has been prowling for bargains after emerging from the turmoil relatively unscathed.

Its most recent investment report reveals it grew by 1.5 per cent over the year to June 30, a solid result considering most superannuation funds chalked up significant losses.

That means it is holding $55.7 billion worth of assets, excluding $8.5 billion from the sale of Telstra.

Although its position has probably deteriorated slightly since the end of June, the fund remains largely insulated from what is being described by some as the worst financial crisis since the Great Depression after it invested heavily in cash and fixed interest-bearing assets.

The Sun-Herald understands the fund is busy scrutinising a range of private equity deals under which it would buy slices of companies not listed on the stock exchange. It is also looking to invest in shares and infrastructure deals.

In the past year, it has expanded from about 15 staff to 40, with a large team of investment experts recruited from the private sector instructed to pursue any opportunities arising from the financial chaos.

Future Fund general manager Paul Costello hinted at the opportunistic strategy this year, arguing the growing uncertainty could work in the fund's favour.

"As a cashed-up investor, we are well positioned to take advantage of the opportunities emerging in this new environment," he said.

After adopting an initially cautious approach, the fund has slowly been divesting itself of assets regarded as safe, such as cash and fixed interest-bearing securities. It now has about 62 per cent of its funds held as cash, compared with 75 per cent a year ago.

The Reserve Bank's annual report released last week also revealed the fund ripped $40 billion from the central bank's deposit book to free cash for other investments.

The Reserve Bank said the withdrawal had a significant impact on its bottom line.

Treasurer Wayne Swan has declined an invitation to put a dollar amount on any losses incurred by the Federal Government's financial institutions. He said the level of exposure was negligible, although there would be some exposure "across the system".

Prime Minister Kevin Rudd said the meltdown would hit Government revenues, with slower local and international growth likely and slower growth in tax revenue.

"When you have a softening of global economic growth and a softening of Australian economic growth, that obviously will have some impact on Government revenues over the course of the financial year," he said.

The turmoil follows the collapse of US investment bank Lehman Brothers, the purchase of Merrill Lynch by Bank of America, and the forced bail-out in the US of global insurer American International Group.

After falling sharply during the week, the Australian sharemarket recovered on Friday following a huge rescue effort by central banks that involved about $228 billion being poured into money markets.

© 2008 Sun Herald

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