The Future Fund will soon decide whether it will keep investing in the tobacco industry, the managing director revealed at a portfolio update on Tuesday morning.
The regular quarterly update showed the fund’s investments returned 12.8 per cent in 2012, increasing the portfolio from $73 billion to $82.4 billion.
This was one of the fund’s best performances and a significant improvement after returning just 2.1 per cent in the twelve months to June 2012. It also boosted the average annual return since inception in May 2006 to 5.4 per cent.
Meanwhile the fund has reacted to government calls for it to stop investing in tobacco companies. Managing director Mark Burgess said the board’s governance committee has been debating and analysing the tobacco investments and was expected to make a decision in the ‘‘early part of this year’’.
‘‘We have not said we are going to exclude tobacco, we are just thinking about it,’’ he said.
Adding later that ‘‘lots of people have lots of views about what they would like to exclude. The most important thing for a long term fund is that you have a clearly defined way you come to conclusions on that. And that is what the governance committee is designed to engage in.’’
It currently invests between $230 million and $250 million in tobacco companies and tobacco-related industries.
In 2011 the fund stopped investing in companies that build cluster bombs and landmines, but was still involved in the broader ‘‘armaments industry’’, Mr Burgess said. The decision to stop investing in two types of armaments was driven by the Australian government signing up to the global Convention on Cluster Munitions, which comes into effect in April.
The governance committee is one of the largest board committees. The chair is former Treasurer, Peter Costello, the fund’s chairman, David Gonski, and directors who come from the investment industry Carol Austin, Susan Doyle, Stephen Fitzgerald and Stephen Harker.
Meanwhile the fund continues to invest in eight key asset classes. After starting an investment portfolio during the financial crisis and with two billion Telstra shares, which have now been mostly sold off, it was now well diversified.
The largest allocations were to debt securities (19 per cent), developed markets (18 per cent), alternative assets (16 per cent) and Australian markets and cash (11 per cent and 10 per cent).
Chief investment officer David Neal said fund will increase its weighting of ‘‘tangibles’’, which included property and timberland investments, and private equity as it matures, while decreasing debt and cash. It has little or no exposure to sovereign bonds from developed markets, but does invest in sovereign bonds from emerging countries, he said.