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Issue #1540      21 March 2012

Future Fund furore

Vested interests, not personalities

It is not going to make much real difference to the people of Australia or the public sector employees whose retirement incomes will come from the Future Fund if former Liberal treasurer Peter Costello or businessman David Gonski heads the Fund’s Board. It might affect which financial institutions have a finger in the $75 billion pie it manages. The more important issues – what types of investment the Fund makes and the risks it takes with public monies are not being debated.

Gonski’s appointment came as a surprise, as he had been hired by the government to ascertain the views of the Board regarding its next chair. According to media reports the board favoured Costello.

The former Howard Liberal government set up the Fund in 2006, with the aim of making provisions for future Commonwealth superannuation payments when “an ageing population is likely to place significant pressure on the Australian government’s finances.” Its major source of funds is from the sale of Telstra shares. The treasurer and finance minister appoint Board members, the fund operates independently from, but is accountable to, the government which only appears interested in the dollar outcome.

Playing the financial markets

Its investment choices are very much geared towards playing share markets and providing finance for the big investment houses, which it appears to do with little morality or concern for human life. Last year it was revealed that some of its investments were possibly illegal under Australian law. The fund had holdings in 15 companies involved in the production and maintenance of nuclear weapons to the tune of $135 million. These 15 nuclear weapons companies are involved in the design, production and maintenance of nuclear weapons for the United States, Britain, France and India.

It is difficult to see how its investments are of any direct benefit to the Australian people. Its funds are invested and speculated with in a similar manner to that of other superannuation funds. Often the same financial institutions are involved. As with workers’ savings in super funds, these investments are just as vulnerable to the gyrations of stock markets, currencies and various financial speculative instruments and serve no socially useful purpose. Less than $10 billion is invested in tangible assets (infrastructure and property), the remainder is put at risk on financial markets.

Conflict of interest

Board members have backgrounds in the financial sector, some with the very institutions that are used to manage the funds. A look at some of its board members shows where their interests lie:

Carol Austin, a recent Labor appointment, holds or has held directorships and other senior positions in Contango Asset Management, HSBC Bank Australia, the Tasmanian Public Finance Corporation, Rothschild Australia, BHP and the Reserve Bank of Australia.

Board member John Mulcahy held senior positions in the Commonwealth Bank and was CEO of Suncorp, Lend Lease Property Investment Services and Civil and Civic.

Brian Watson has extensive experience in the finance sector, in very senior roles globally and in Australia with JP Morgan. Rumour has it that his board membership will not be renewed, that he will be replaced by Steve Harker who is managing director of Morgan Stanley Australia. This also appears to be controversial as Gonski is a senior adviser to Morgan Stanley.

Stephen Fitzgerald was appointed last year by the Labor government. He has a long association with Goldman Sachs Australia, is still its chair and was Co-CEO.

Costello, former treasurer of the Howard government, was appointed by the Rudd Labor government to the Board in 2009 – a reflection of the similarity in economic policy between the two parties. Costello established the Fund and now seems to think he should own it.

Costello has held or holds positions with APEC, the IMF, the World Bank, the Asian Development Bank and BKK Partners. BKK is a boutique investment bank which gives advice on mergers and acquisitions. It was set up by Costello and three former bankers at the Australian arm of Goldman Sachs just weeks prior to Costello’s appointment to the Future Fund in December 2009.

Goldman Sachs is one of the most powerful and dominant global financial institutions and wields enormous influence in the US Federal Bank and treasury. The revolving doors never stop as its personnel move in and out of the company and government offices. Labor’s appointments appear to have brought two Goldman Sachs connections onto the Future Fund Board.

Gonski has a reputation as a “kingpin” corporate operator in big business circles and this is considered one of the plum jobs in the industry. Gonski’s current positions include chairman of the privatised Australian Securities Exchange (ASX), Coca-Cola Amatil, Investec Wentworth, Ingeus (the company of Rudd’s wife Therese Rein) and Swiss Re; and director of Singapore Airlines and Infras NSW. His former directorships include ANZ, Angus & Coote, Westfield, Hoyts Cinemas, John Fairfax. He was also a senior adviser to Morgan Stanley and a partner in the pro-Liberal Party legal firm Freehills (notorious for its role in drafting the anti-union WorkChoices). He recently chaired the review of school funding for the Gillard government.

His corporate credentials are hard to beat. He appears to have one blot on his copy book, an involvement in the establishment of Westfield Capital in the 1980s, which collapsed in 1987.

Members of the Future Fund Management Agency Board which advises and develops investment strategies are also from leading financial and other institutions, with the same conflict of interests arising between their corporate backgrounds and investment decisions.

Diversion from key issues

It is time to debate the important issues, not corporate personalities or whether Labor should appoint a former Liberal Party treasurer. Behind the personalities also lies the real battle of which financial institutions get control of the funds.

The Future Fund, as already stated, is not invested in any socially beneficial manner. With assets of around $75 billion, it has huge potential to play an important role in providing infrastructure and services to the Australian people at the same time as being invested more securely. Public housing, public transport and the public development of environmentally sustainable renewable energy are a few examples of how its funds be securely invested and be of benefit to the nation.  

Next article – ANF campaign improves nurse/midwife patient ratios

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