Australia Seek Change to Future Fund Tobacco Stakes

The Australian Greens party, whose support helped deliver power to Prime Minister Julia Gillard, wants the investment criteria of the Australiagovernment’s Future Fund changed to prevent the holding of shares in tobacco companies.

“It makes no sense for a Federal Government fund to be investing in a way which is so clearly at odds with current health policy,” Greens Senator Rachel Siewert said in an e- mailed statement. “This revelation should provide us with an opportunity to re-visit the Fund and see what we can do to improve this investment strategy.”

The Future Fund, established in 2006 to cover pension costs of retiring lawmakers, judges and public servants, had A$147.7 million ($148 million) invested in tobacco and cigarette companies as of Dec. 31, according to portfolio holdings obtained by Bloomberg News through a Freedom of Information Act request.

The investments are held as Australia introduces some of the toughest anti-smoking laws in the world, including becoming the first nation to ban brand names on tobacco packs. In addition to raising the excise on tobacco by 25 percent last year, the government banned the public display of cigarettes in stores.

Australia, where sales of tobacco products totaled A$10.9 billion in 2009, records about 15,000 deaths a year from related diseases, according to government statistics. Smoking is the largest preventable cause of death, according to the Australian Medical Association.

Health Care

Nicola Roxon, health minister in Gillard’s Labor government, last month said smoking cost Australia’s A$1.3 trillion economy about A$31.5 billion each year in health care and lost time due to illness.

“My personal view is no one should invest in tobacco companies,” Roxon told the Herald Sun newspaper. “No one should invest in products that are such dreadful killers.”

The fund was established as a statutory authority under the Future Fund Act of 2006 by the previous administration of Prime Minister John Howard. It has its own board, while oversight is provided by the Treasurer and Minister for Finance and Deregulation, according to its website.

The board has been set target returns on its investments by the government and can invest in a wide range of industries “provided those activities are legal in Australia,” the Future Fund said in a March 11 e-mailed statement.

Balance of Power

Gillard’s minority Labor government needs the support of four non-party lawmakers to pass laws after the August 2010 election delivered the closest result in 70 years. Greens lawmaker Adam Bandt along with independents Tony Windsor, Rob Oakeshott and Andrew Wilkie pledged their support to enable Labor to govern.

From July 1 when the new Senate term starts, the Greens will have the balance of power in the nation’s upper house, with enough of its own Senators to side with Labor to pass laws or team with the opposition to defeat them.

The Future Fund’s holdings as of Dec. 31 include A$46.4 million in London-based British American Tobacco Plc, A$36.5 million in New York-based Philip Morris International Inc. and A$26.1 million in Lorillard Inc.

The fund’s tobacco investments were held across 14 companies in nine countries, also including South Korea’s KT&G Corp., Japan Tobacco Inc., Gudang Garam TBK PT of Indonesia and Swedish Match AB, according to the Future Fund.

Its investment in tobacco companies represents 0.5 percent of its holdings in equities.

New Legislation

Australia bans the open display of cigarettes in shops and cigarette packs carry graphic images of diseases blamed on smoking. Legislation mandating plain packaging, which would prevent the use of company logos, brand imagery or promotional text, will be introduced this year.

The government’s 25 percent increase in tobacco excise last year raised the cost of a packet of 30 cigarettes by about A$2.20 to about A$17.70. Single cigarette packet prices are now as high as A$20 depending on where they are bought. Small stores and service stations are more expensive, according to figures from the National Retail Association.

Tobacco Investments

The Future Fund also invests in Imperial Tobacco Group Plc, of Bristol, U.K., which last year said it may take legal action against the government’s new proposals.

British American had 46 percent of the Australian retail market for cigarettes in 2006, according to a 2008 report by Cancer Council Victoria. Philip Morris had a 34 percent share and Imperial had 18 percent.

The Future Fund states its purpose as “accumulating financial assets sufficient to offset the Commonwealth’s unfunded superannuation (pension) liabilities by 2020,” according to a statement of investment policies on its website.

Run by former Commonwealth Bank of Australia Chief Executive Officer David Murray, the fund targets an average return of at least the rate of consumer price index plus between 4.5 percent to 5.5 percent per annum as its long-term benchmark with an “acceptable, but not excessive, level of risk.”

The Future Fund had A$71.8 billion in assets at Dec. 31, 2010, according to a portfolio update published on its website on Jan. 28 this year.

To contact the reporter on this story: Robert Fenner in Melbourne [email protected]

By Paul Tighe: [email protected]

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