Gonski defends Future Fund credentials and tobacco share holdings

Mr Gonski, one of the best-connected businessmen in corporate Australia, also said he had bolstered the fund's handling of conflicts of interest since he began running the $80.5 billion investment giant in March.

In a rare appearance before a Senate committee in Canberra, Mr Gonski last night said the taxpayer-owned fund took a "very active" approach to environmental and social concerns.

The fund - which last week revealed it was reviewing the $219 million worth of tobacco shares - had not set out specifically to invest in cigarette makers, he said. Instead, it bought the shares through its investment in fund managers, which often had a mandate to own top-performing stocks.

"The Future Fund does not invest specifically in particular companies," Mr Gonski said in Canberra.

"Our investment in tobacco comes from the fact that we have invested in a number of managers," Mr Gonski said.

Aside from tobacco investments, which have been slammed by the Greens and health groups, the Future Fund has also sparked criticism for investing in the nuclear arms industry.

Mr Gonski, the chairman of Coca-Cola Amatil and Investec Bank, also said he had made governance a top priority at the fund since he took over, launching a dedicated conflicts committee.

Before every board meeting, directors who may have a conflict were told so they could exclude themselves as needed, he said.

"I think I've spent my life, my 35 years as a business person, being very much involved in governance and very much involved in working out how conflicts and so on should be handled," Mr Gonski said.

"If I have an expertise, I think it's in that."

The Future Fund has a long-term investment mandate of 5 per cent above inflation, but this goal has been hampered by global market volatility.

Since its inception in 2006, the fund's average return is 5.2 per cent a year, and it continues to expect sluggish global growth.

The government's fund-raising arm, the Australian Office of Financial Management, yesterday said in its annual report there was "little prospect" of an end to the volatility on global financial markets in the short to medium term.