Australia’s sovereign wealth fund dumped holdings in mine and cluster bomb makers as the nation prepares to ratify a treaty banning the weapons.
The Future Fund, which has A$74.6 billion ($81.7 billion) in assets, this year excluded 10 companies involved in making munitions from its investments, including selling two of its three biggest defense holdings in Lockheed Martin Corp. (LMT) and General Dynamics Corp. (GD), Will Hetherton, a fund spokesman, said in e-mailed comments.
The fund, established in 2006 to cover the pension costs of retiring lawmakers, judges and public servants, had A$239 million invested in defense and aerospace as of Dec. 31, according to portfolio holdings obtained by Bloomberg News through an Australian Freedom of Information Act request.
“Having initially excluded a number of companies on the basis of very clear evidence, during 2010 we undertook a rigorous process to identify and assess companies where evidence was less strong,” Hetherton said. “As a result we have now excluded a total of 10 companies and unwound any investments we held.”
While Australia joined more than 90 other countries in signing the Convention on Cluster Munitions in 2008, the nation has yet to ratify the treaty with legislation currently before Parliament. The accord prohibits the use, development, production, stockpiling and transfer of cluster weapons able to release dozens of “bomblets” over a wide area and which have been blamed for civilian casualties.
Defense Holdings Sold
Other stocks to be sold include Alliant Techsystems Inc. (ATK), L-3 Communications Holdings Inc. (LLL), Raytheon Co. (RTN) and Singapore Technologies Engineering Ltd. (STE) The defense investments sold by the Future Fund had a market value of A$74 million as of Dec. 31, according to the documents, which don’t say when the fund bought the shares or how much they paid for them.
“We don’t direct the investment decisions of the Future Fund,” Treasurer Wayne Swan told reporters in Canberra today. “Cluster bombs, my personal view of those, is that they are very destructive weapons which can cause enormous amounts of human misery.”
Lockheed Martin rose 25 percent since the start of 2006 and the end of last week while General Dynamics is up 28 percent. The MSCI World Index gained 10 percent in the same period.
The fund’s biggest defense holding is in Honeywell International Inc. (HON), with a value of A$28.2 million.
Under legislation to ratify the treaty, it would be illegal for an individual or bank to finance or help a company that develops or produces cluster munitions.
“The board’s position is that it will not invest in economic activities that are illegal in Australia or contravene conventions,” Hetherton said. “We will continue to monitor the portfolio and the activities of relevant companies to assess whether further exclusions become necessary or whether current exclusions can be removed.”
Cluster bombs have been used by at least 15 countries, including the U.S., Russia, the U.K., France and Israel, according to the Cluster Munition Coalition, an umbrella group for 300 civil-society organizations.
“This is important given that Australia is a signatory to the international convention banning these horrendous weapons,” Michelle Fahy, Canberra-based spokesman at the coalition, said in e-mailed comments. “Australia has one of the largest investment markets -- we would really make a difference if our finance sector ceased financing and investing in the manufacture of these weapons.”
Sovereign Wealth Funds
The accord is the first international treaty to ban an entire category of conventional arms.
Established as a statutory authority by the administration of Prime Minister John Howard, the fund has its own board. Oversight is provided by the Treasurer and Minister for Finance and Deregulation, according to its website.
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.
The fund is the world’s 13th largest sovereign wealth fund by assets under management, ranked behind the Qatar Investment Authority, according to the Sovereign Wealth Fund Institute, which analyses the sector. The Abu Dhabi Investment Authority is the world’s largest with $627 billion, followed by Norway’s Government Pension Fund-Global with $556.8 billion.
Run by former Commonwealth Bank of Australia (CBA) Chief Executive Officer David Murray, the fund targets an average return of at least the rate of the consumer price index plus 4.5 percent to 5.5 percent per annum as its long-term benchmark with an “acceptable, but not excessive, level of risk.”
The fund has faced calls from the Australian Greens, who helped Prime Minister Julia Gillard win power last year, for its investment rules to be revised since disclosing in March A$147.7 million of tobacco investments.
“It is time for the government to do some soul searching on where the appropriate place is to invest taxpayers’ funds,” Greens Party Senator Scott Ludlam said in a phone interview from Broome, Western Australia. “I congratulate the fund for divesting the cluster bomb stocks and they probably went further than the bill before Parliament would have required them to do.”
The Future Fund had A$74.6 billion in assets at March 31, according to a portfolio update published on its website on April 29. It had A$1.6 billion invested in Australia’s largest telephone company Telstra Corp., part of the seeded capital provided by the government when the then state-owned Telstra was sold to the public. It has a further A$8.5 billion invested in Australian equities and A$20 billion in international stocks.
The balance of its holdings are in private equity, property, infrastructure, debt and cash.