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Future Fund’s return to tobacco

http://www.theaustralian.com.au/national-affairs/treasury/future-funds-return-to-tobacco/story-fn59nsif-1226576556633

Future Fund’s return to tobacco

THE Future Fund has invested in another tobacco company, at the same time as a board committee of the $84 billion fund is conducting a review of its exposure to the sector.

In Senate estimates yesterday, Future Fund managing director Mark Burgess said the new investment, believed to be worth $200,000, was in the Czech unit of Philip Morris.

This had taken the number of tobacco stocks held by the fund to 15, although the value of its exposure to the controversial sector had fallen from $231 million to $221m. Asked by Greens senator Richard Di Natale if he was aware that the Czech Republic was the only country not to have signed the World Health Organisation’s framework convention on tobacco control, Mr Burgess said he didn’t follow each stock in the Future Fund’s portfolio. He said the investments were made at the discretion of the fund’s external managers.

Senator Di Natale also drew the committee’s attention to a study commissioned by the Czech company that found public finances could be boosted by the tobacco industry, despite the harmful impact on the health of cigarette smokers.

The study, he said, had concluded revenue from tobacco taxes was greater than the cost of health care for smokers.

He asked Mr Burgess if the fund’s environmental, social and governance (ESG) policy — which rules out investments in companies making landmines — was actually “pretty useless”.

The Future Fund chief said the board’s ESG committee had announced a review of tobacco investments in November, and the review was continuing.

“We believe (the policy) is world’s best practice,” he said.

Mr Burgess was also questioned about the increase in the fund’s costs from about $50m in 2007-08 to $417m last year.

He said this was due to the increase in the size of the fund from $60bn to $84bn, and the investment of its endowment, which was mostly in cash, in a range of asset classes.

The external managers also had to be paid fees.

In his opening remarks, the Future Fund chief said the question for long-term investors was whether the strong recent returns in markets were sustainable, given the fiscal challenges in the US and other countries.

“On balance, we believe that, in general, markets offer reasonably prospective long-term returns, albeit that considerable uncertainty remains,” he said.

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