Peter Costello and the Future Fund Fiddle

Mon, 24 Oct 2016  |  

This article first appeared on The Adelaide Review website at this link: 


Peter Costello and the Future Fund Fiddle

The latest portfolio update from the Future Fund confirmed that the average annual return on its investments has been 7.7 percent since it was established in May 2006.

Former Treasurer Peter Costello, who is the Chair of the Future Fund Board of Guardians, judged this return to be good to the point where he claimed that it was successful in “exceeding the return objective”.

That is an expansive claim.

In the media release – that included details of the fund return up to June 30, 2016 – there was a table that showed the 7.7 percent annual return that Costello referred to. It also noted that the ‘target return’ or objective for the Future Fund since inception was 6.9 per cent, which no doubt leads Costello to his conclusion that the 7.7 percent was larger and had exceeded the objective.

Alas, that target return for the Future Fund in its own media release is misleading. According to the Future Fund Act 2006, the investment objective or target return is at “least the rate of inflation (measured by the change in the CPI) plus 4.5 to 5.5 percent”.

This return was designed to be achieved “over the long term” which is prudent and sensible given the inherent short-term volatility and variability in many market values.

With the Future Fund in operation for a decade, there is a reasonable long-term time-frame with which to judge its performance.

Based on the long-run target for annual inflation of 2.5 percent (set by the government and the RBA) this means that the Future Fund’s target return should be at least seven or eight percent. To ‘exceed’ its objective, the return delivered by the Future Fund would, quite obviously, need to be above eight percent per annum.

As a small aside, since the creation of the Future Fund, the average annual rise in the CPI has been 2.4 percent which suggests that target return over the decade of operation should be between 6.9 and 7.9 percent, with this slightly lower result due to the inflation rate being very low and below the RBA target in recent years.
At 7.7 per cent, the return has been around the middle of the target and no more.

The Future Fund and Costello referred to the lower end of this band when claiming success rather than the legislated target which has an upper bound one percentage point higher than in the Future Fund’s own media release.

In some respects, the over-egging of its success by the Future Fund and Costello is not all that serious. The returns have been solid and within the minimum target range it established.

It is also interesting to note that the investment strategy of the Fund is unusual for an Australian fund manager, with just 6.3 percent of the overall portfolio in Australian stocks. Interestingly and rather refreshingly, it has 22.5 percent in global stocks, over 10 percent in private equity and what appears to be a heavy weighting of 13.7 percent in ‘alternative assets’.

It is important to note that the Future Fund is managing taxpayers’ money and its main purpose is to cover the financial obligation of the superannuation and retirement costs of Commonwealth public servants. The $122 billion funds under management are set to achieve this objective, and if it can continue to achieve solid returns, it will have done a good job.

There is no need for it, or Costello, to exaggerate its success by fudging the target return and claiming success in beating it when it has done no such thing. The good news it that the Future Fund is close to achieving its aim. No more, no less.

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How Labor lost the federal election SO badly

Thu, 07 Nov 2019

This article first appeared on the Yahoo Finance website on 20 May 2019 at this link: 

How Labor lost the federal election SO badly

The Coalition did not win the election, Labor lost it.

The tally since 1993 for Labor is a devastating seven losses out of nine Federal elections. By the time of the next election in 2022, Labor will have been in Opposition for 23 of the last 29 years. Miserable.

The reasons for Labor’s 2019 election loss are much more than the common analysis that Labor’s policy agenda on tax reform was a big target that voters were not willing to embrace.

Where the Labor Party also capitulated and have for some time was in a broader discussion of the economy where it failed dismally to counter the Coalition’s claims about “a strong economy”.

In what should have been political manna from heaven for Labor, the latest economic data confirmed Australia to be in a per capita recession. This devastating economic scorecard for the Coalition government was rarely if ever mentioned by Labor leader Bill Shorten and his team during the election campaign.

This was an error.

If Labor spoke of the “per capita recession” as much as the Coalition mentioned a “strong economy”, voters would have had their economic and financial uncertainties and concerns confirmed by an elevated debate on the economy based on facts.

This parlous economic position could have been cited by Labor for its reform agenda.

Why animals are a crucial part of the Australian economy

Thu, 07 Nov 2019

This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: 


Why animals are a crucial part of the Australian economy

Animals are a critical part of the Australian economy, either for food, companionship or entertainment.

But every month, millions of sheep, cattle, pigs, chickens, fish and other animals are bred and then killed. Most of them are killed in what we define as ‘humane’, but no doubt tens of thousands are horribly mistreated, as are a proportion of the animals we keep as pets.

Animals are slaughtered to provide food for human food consumption, to feed other animals (your cats and dogs are carnivorous) and for fertiliser.

The Australian Bureau of Statistics collects a range of data on animal slaughterings and the most recent release of the Livestock and Meat data release included the following facts.