January 10, 2006
Future Fund
My Crikey email yesterday had a quick peek at the Future Fund, set up to invest the proceeds of the Telstra sale on behalf of future generations of Australians. I would love to quote the whole thing, but since its for subscribers, I probably shouldn’t (copyright and all!).
It discussed an uncited SMH article (which I can’t find) that pointed out the government’s intention that the Trustees of the Future Fund ‘will take a vigilant and active role in the companies it invests in’. I assume this means the trustees will invest in companies, then push for corporate governance change and better shareholder value. For any other investor, including institutional investors, this would be fine. I am a bit worried about the same principle being applied by those running the future fund. Yes, they are supposed to be independent, but I don’t trust our government to ensure that is the case.
My understanding is that the point of the Telstra sale is to release the company from government interference and allow it to run completely as a private enterprise, with no government spots on the board and other signs of government management. This government ran its election campaign based on lowering the level of government influence over the economy. I am thinking specifically of the Telstra sale, but also the IR reforms and VSU. They are all based upon better releasing free market forces.
Why, then, should the government push for better governance or shareholder value in particular cases? Given the assumption that the trustees will not be independent, this is the same as the government introducing legislation which deals with corporate governance or better shareholder value at, say, the National Australia Bank. Legally, it can’t do that. Laws must be made on a general and not specific basis. It follows that the government should be pushing for better coporate governance at the general level, not by picking undervalued or badly managed companies and generating better returns.
If our government wants to get itself out of business, it cannot then turn around and get itself into shareholder activism. They can’t have it both ways. If they are interested in the free market, it follows that the better course of action is to give the proceeds of the Telstra sale back to the people of Australia and let THEM pick undervalued companies.
The Law Thoughts 
Dash Brannigan said,
January 10, 2006 at 12:10 pm
The whole future fund thing is a bit of a con. Firstly you will never have the future fund at arms length to government. While they have a whole swag o cash there they will use it to pander to some policy outcome. For example within a week of the funds announcement the head of the National Gallery (I think) wanted the government to invest in art. This is bullshit because art works aren’t investments for the NG but rather status symbols. People don’t sell status symbols when the market is hot.
As for government minimizing their influence on markets I totally agree. Not only though the size of government but the regulatory influence it has. However in answering your question of “Why, then, should the government push for better governance or shareholder value in particular cases?” well the simple answer is that they now own some of it. But the emphasis has to be on share value not politicians’ values. If the government invests in NAB and forces changes which improve the return on investment how is this a good thing. Governments tend to be terrible at this and usually fuck it up, this is a bad thing.
As for the future fund and what its there to do, I think I read someplace that it was to fund the unfunded superannuation liabilities of public servants. Basically making sure the govt conforms to the same standard as private business. However, it seems to have been set up as a mechanism to improve public savings which is good, but will probably be used to pork barrel, which is bad.
As for your question as to why can’t the government just give the money to Australian’s to invest in undervalued companies themselves… because we’ll probably spend it on cheap a plasma TV fresh off the boat from China.