AUSTRALIA - The Australian government has appointed Watson Wyatt to assist in forming its investment mandate for the Future Fund.
The appointment, announced by Treasurer Peter Costello, followed the government’s tender for an asset consultant in mid May.
The Treasury said Watson Wyatt would provide advice to the government on a range of issues including the type of asset classes the fund could invest in, the expected returns and associated level of risk; whether any restrictions should exist on investment in particular asset classes, given the objectives of the fund; and potential impacts on financial markets from the entry and ongoing investment activities of the fund.
Legislation for the Future Fund, designed to offset the government’s unfunded liabilities by 2020, should be in place by November. The government’s liabilities, which are currently A$91bn, are expected to almost double over the next 15 years to some A$140bn.
When asked when the government hoped to finalise the investment mandate, a spokesperson for the treasury said he had “no further information”.
The minister for finance and administration, Nick Minchin (pictured), recently told the Financial Markets Congress in Sydney, that he would like to see the fund invest at least 50% offshore.
He said some aspects of the investment mandate would be set out in the legislation while others would be set out in a “subordinate instrument” by himself and Costello.
“We don’t like the idea of allowing the fund to invest directly in infrastructure or property,” he told the Congress. “However, this would not preclude investment in financial instruments like listed infrastructure or property trusts.”
Minchin added that the government is unlikely to allow the fund to take a controlling interest in companies. One policy question would be whether the fund should be able to invest in Commonwealth government securities.
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