Murray's 'Future' Vision

On top of the normal tsunami of superannuation funds, our financial markets this year will have to absorb an extra $18–45 billion as the Federal Government’s new Future Fund gets under way (from seed funding, sales of Telstra shares and surpluses). It's an investment hit that might of itself be expected to boost market values.

Somehow former Commonwealth Bank chief executive David Murray has to find a way of getting all that money into play without disrupting the markets '” it’s just part of his job as the Future Fund’s founding chairman.

He also has to establish a working order for a new board (as soon as the relevant ministers appoint the members) and hire a chief investment officer to run the show, and all within six months. It’s little wonder then that he’s put any other post-CBA positions on hold until the Future Fund is up and running; there’s a lot to be done.

Unfortunately, Murray wouldn’t let us in on the secret of just how he can launch such a big fund without causing a proportionate splash, but he did give Eureka Report a valuable insight into what he wants from the Future Fund and how it will operate, as you can see in the accompanying video and a full transcript of the longer interview from which the video was edited.

Murray is acutely aware of the responsibility and opportunity the Future Fund represents. The very concept of it appeals to him; maybe there’s a touch of an old-school banker’s sense of thrift and purpose involved, as well as the simple economic good sense of investing to meet the Federal Government’s unfunded liabilities.

That’s the bottom line for the Future Fund: $140 billion required in just 14 years to start paying government pensions. The first $18 billion is on the table, to which will be added about $25 billion from the final privatisation of Telstra, plus whatever other surpluses federal budgets and politics might produce. (Note the $25 billion estimate from T3, not the $30 billion figure that had been tossed around.)

Beyond that base requirement for 2020, though, is uncharted potential. Depending on how successful the investment program proves to be and the extent of future budget surpluses, the possibility exists for the Future Fund to make further contributions. The chairman’s favoured role models as funds managers are the great American university foundations, which are based on very long-term goals.

In the immediate future though, Murray makes clear that the Future Fund will not an entrepreneurial force in the markets; but it won’t be entirely passive either. In the interest of improving investment performance, the fund will be prepared to vote its shares as it sees fit.

And although the Future Fund will be a “manager of managers”, it will do so with a clear vision and position through its Future Fund Management Agency.
“Even if you manage managers you have to have a portfolio model that’s distinctive, to get the objectives, and you have to have sufficient information and sufficient skill to be able to adapt that portfolio towards its objectives all the time,” Murray says. “That can’t be done just by giving instructions to other people; it has to be very skillfully managed internally.”

The Future Fund is limited to investment in financial instruments and forbidden from borrowing or direct involvement in derivatives, but the markets’ financial engineers will soon have it weighted as another major investor across all asset classes.

And that in some ways means another competitor for existing investors, another big player hunting for returns wherever it can find them.

Finally, there’s the much-discussed issue of the need for the Future Fund to have a separate mandate to handle any swag of unsold Telstra shares that the Government might dump on it. Murray confirms that expectation on camera. Check out the video for a feel of how this important new funds manager will play the game.