THE DISTILLERY: Future Fund fallout

One scribe takes aim at the fees eating away at the Future Fund, while another puts Hurricane Sandy's damage bill into perspective.

The fees charged by fund managers are front and centre this morning, with new figures from the Future Fund showing some pretty big bills are being racked up. The question is, what are the results for those fees?
Speaking of bills of a different nature, another columnist puts the financial cost of Hurricane Sandy into its proper context. And finally, one of Australia’s best political and economics journalists looks at the divergence between Labor’s public utterances on middle-class welfare and its private rhetoric.
Fairfax’s Adele Ferguson reports on the increased transparency at our sovereign wealth fund. What she finds are some pretty big fees being charged.
"Australia’s $80 billion Future Fund has spent almost $1 billion in fees in the past year, which is more than double what was previously disclosed. A decision by the Future Fund to become more transparent with its reporting revealed more than $500 million of additional costs, and shone a spotlight on Australia's $1.4 trillion superannuation industry. It also raises questions about the true size of the fees the sector pays, amid calls for more transparency in relation to costs, remuneration, conflicts of interest and financial statements.”
The Australian’s economics correspondent Adam Creighton is on a similar topic. The News Limited writer looks at how difficult it is for fund managers to beat the benchmark index.
"About three-quarters of all Australian equity fund managers did worse than the benchmark ASX 200 index over the past year, for instance. More than 90 per cent of fixed-interest fund managers did worse over a five-year period. This is mainly why fees are high at Australian super funds and why many people are fleeing the "managed" sector to set up their own self-managed funds where typical costs are lower. The super industry, largely underpinned by banks, extracted about $17 billion in fees from people's savings last year, equivalent to about 1.2 per cent of the total $1.4 trillion pool. The bulk of those fees are investment management fees, which are close to zero for passive or index fund management. Yet only 16 per cent of super savings in Australia track an index, far less than in the US and Britain, for instance, which do not have a compulsory retirement saving scheme like Australia's.
Fairfax’s Malcolm Maiden puts the Hurricane Sandy damage bills that the world’s largest economy is going to cop into their proper context.
"The hurricane that slammed into the north-east of the United States this week produced some compelling and wrenching scenes of chaos and community upheaval, but in economic terms it will be a storm in a teacup. Estimates of the damage bill have increased from $US20 billion to $US50 billion, and will probably climb. That's a large number when viewed in isolation, but a small one when viewed in the context of the entire US economy. US gross domestic product is running at about $US15 trillion a year, so the cheques that will be written to repair the damage that hurricane Sandy caused represent about one-third of one per cent of America's annual output. If anything, those cheques will eventually produce a small net economic lift in affected regions, and in the broader US economy there are positive developments.”
And The Australian’s George Megalogenis writes that there’s a distinction between Labor’s public rhetoric and private conversations about cutting the middle-class welfare of the Howard years.
"Publicly, Julia Gillard and Wayne Swan reject the term for fear of it being misread as an attack on working families. Privately, though, there is no ambiguity. This government wants to be remembered for dismantling the Howard handout machine. It understands it can do this only by targeting many households which believe they belong to the hard-pressed middle class. Labor has taken the long road, through a series of changes to means tests and indexation arrangements from the baby bonus to the private health insurance rebate that will reduce the total number of beneficiaries over the rest of the decade. In an ideal world, Labor would be clear about what it was really up to.”
Fairfax’s Michael West says Echo Entertainment’s defence strategy against billionaire James Packer has been absolutely brilliant… for short sellers.
The Australian’s Richard Gluyas previews the results of Westpac Banking Corporation, which delivers the numbers today.
Fairfax’s Ross Gittins leads a discussion on the rapid expansion of Asia in the wake of the Gillard government’s white paper, Australia in the Asian Century. In a separate piece Gittins says the paper’s most obvious weakness is its ineffective coverage of the environmental problems that will begin to limit that growth and the downside that this present for Australia.
The Australian’s economics editor David Uren argues that the US economy is showing the benefits of tough decisions.
And finally, The Australian Financial Review’s economics editor, Alan Mitchell, writes that a victory for Republican Mitt Romney would not necessarily transform the tepid recovery of the US economy that we’ve seen so far under President Barack Obama.


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