Future Fund chairman Peter Costello has signalled he is sceptical about governments asking businesses to put more emphasis on pursuing social goals, after Treasurer Jim Chalmers has recently pushed for greater co-investment between business and government.
As the $196 billion fund on Wednesday reported a return of -3.7 per cent for last year, its weakest annual results since the global financial crisis, Costello, a former Coalition treasurer, was asked for his response to Chalmers’ recent 6000-word essay “Capitalism after the crises” in The Monthly.
The essay highlights the role of co-investment between government and business, including the superannuation sector, in areas such as clean energy, housing and aged care.
Future Fund chairman Peter Costello: “This idea that every institution must be given every purpose – I think you’ll just lose focus.”Credit:Eamon Gallagher
Costello on Wednesday argued the Future Fund and superannuation funds should focus on making returns, rather than pursuing social goals, which governments could pursue through direct spending in the budget or legislation.
“Governments are there to decide on social objectives. Businesses don’t do that. Business is there to run businesses and account to shareholders. This idea that every institution must be given every purpose – I think you’ll just lose focus,” Costello said in response to a journalist’s question about Chalmers’ essay.
“The government can through law require businesses to do whatever it wants. And I think that’s the way to do it, to do it via law. Everybody knows what the rules are, they can abide by them” said Costello, who is also chairman of this masthead’s owner, Nine Entertainment Co.
Costello stressed that neither Labor nor the Coalition had attempted to influence what the Future Fund could invest in, and said that if this were to occur it would “come to a very bad end”.
“This is an investment fund, we invest for return. That’s what we’re here for. I would say that’s the same when it comes to superannuation. Superannuation funds invest for return because that’s people’s retirement.”
The Future Fund on Wednesday reported a return of -3.7 per cent for the year to December, equal to $7.4 billion decline in the value of its assets, as its investment portfolio was hit by sharp declines on equity markets.
It is the weakest return over a calendar year since 2008, when it returned -8.5 per cent, though the fund’s returns were stronger than the -4.8 per cent return made by a typical superannuation fund last year.
‘This is an investment fund, we invest for return. That’s what we’re here for.’
Costello said the fund had faced an “extremely difficult” investment environment, as global share markets tumbled in response to central banks raising interest rates sharply. The ASX 200 lost 5.5 per cent in 2022, and Wall Street’s S&P 500 dropped 13.6 per cent.
Costello highlighted the risk of recession in developed world economies, and said interest rates had further to rise, including in Australia, as economists predict.
“The cycle of rising rates to control inflation is not yet complete and brings with it the possibility of recessions in much of the developed world,” he said.
The decline in the fund’s assets comes in stark contrast to the bumper year in 2021, when it returned 19.1 per cent, and it comes as investors are fretting over the risk of global recession.
The fund’s chief executive, Dr Raphael Arndt, said he did not think markets were pricing in a major recession, and the Future Fund remained cautious about its exposure to consumer-facing businesses. Markets have started the year more optimistically, with the ASX 200 up 8 per cent in 2023, but Arndt predicted more volatility as central banks try to bring high inflation under control.
“We expect volatility in markets, and we expect inflation to be volatile too over coming years,” Arndt said.
Futures markets are betting the Reserve Bank next week will raise the cash rate from 3.1 per cent to 3.35 per cent, which would be the ninth interest rate rise since May last year.
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