Greg Combet

The Future Fund’s new chair, Greg Combet, is a safe pair of hands with a long experience in industry superannuation, politics, government and the union movement.

But while he is coming into the role, taking over after long-time chair Peter Costello (in a smoother exit than Costello made later from his chairmanship of the Nine Group), not wanting to be seen to be rocking any boats, Combet is shaping up as a very different chair of the nation’s $220 billion sovereign wealth fund.

With his strong connections to the Albanese Government, the Labor Party and the industry super sector, and a long-standing interest in climate change policy, a key question will be how much his passion for the energy transition story will play out in his new role.

Having started his career in the union movement under the mentorship of Bill Kelty and rising to the role of ACTU secretary, a position he held from 1999 to 2007, Combet opted for a political career.

He entered politics in 2007 taking over the federal seat of Charlton in the Newcastle area of NSW – a region still known for its coal mining.

His trade union background saw him become involved in the emergence of the industry superannuation sector, including becoming deputy chair of AustralianSuper (from 2002 to 2007) and chair of industry super fund-backed online bank ME Bank, initially from 2006 to 2007 and later from 2015 to 2020.

Combet’s role in climate change policy as a politician goes back to 2009 when he was made Minister Assisting the Minister for Climate Change in the Rudd Government, and then elevated to the role of Minister for Climate Change and Energy Efficiency in the Gillard Government in 2010.

He held the Climate Change portfolio until he retired from politics ahead of the 2013 election.

Combet then stepped up his role with the industry superannuation sector, becoming chair of industry super lobby group Industry Super Australia in 2018, and chair of industry super investment vehicle IFM Investors in 2019.

He chaired the Victorian Government’s expert panel on interim emission reduction targets in 2019 before being called on by the Albanese Government to chair the new Net Zero Economy Agency last year.

Unique combination

Combet comes into his new role at the Future Fund with a unique combination of a strong background in industry super investments (IFM has a strong interest in infrastructure investments in Australia and overseas) and in the issues around the energy transition.

In an interview with The Australian newspaper to coincide with his receipt of an AO in the recent King’s Birthday Honors, Combet said he did not come into the role with any preconceived ideas of what the fund should do.

But he pointed out that the Future Fund was already a big investor in renewable energy through its stake in Tilt Renewables.

He said the Fund could continue to look at more investments in the sector if they had “the right risk-return profile.”

He said that if potential investments in renewables and green energy have “the right risk-return profiles and they are attractive investment opportunities, certainly it [the Fund] can build it up”.

The Future Fund’s main goal, as he said, was to deliver its mandated return of CPI plus 4 to 5 per cent a year over the long term.

He sees the fund as a “successful institution meeting its benchmark returns over the long run”, which he said was “to be respected”.

But he also made it clear that he saw the fund as having a role to play in investment in the energy transition.

Combet said he was interested in making the Future Fund’s investments better known, including how it was “assisting the energy transition”.

“There’s a good opportunity, with this change in the board of guardians and me coming in, for us to make it a bit better known exactly where the money is invested and how, for example, it is assisting in the energy transition,” he said.

In 2021, the Future Fund was part of a consortium including the Queensland Investment Corporation and AGL, which bought the Australian operations of Tilt Renewables, the largest owner and operator of large-scale wind and solar projects in Australia.

The Future Fund has a 40 per cent stake in Tilt, which signed a 15-year power purchase agreement for energy company AGL to take 45 per cent of the output of Tilt’s Rye Park Wind Farm in regional NSW.

Reframed thinking

Combet says he will need to reframe his thinking from the operations of super fund investing to the operations of the Future Fund, which has different constraints and parameters.

The fund was set up under the Howard-Costello Government in 2006 which handed it $60 billion to invest.

The goal was to use the funds from the sale of Telstra to help fund the superannuation entitlements of federal public servants.

The Future Fund Agency has since been given a range of smaller funds to administer but the growth of the fund itself to a record $223 billion has all come from its investments with no new cash injections from the Federal Government.

Together with the other smaller funds under its umbrella the Future Fund agency now invests a total of $285 billion.

While the Future Fund’s earnings are counted as part of the federal budget, the good news for the fund is that Canberra has resisted putting its hands in the till and taking money out.

So while the fund is not receiving any new inflows, unlike super funds, it can invest with the confidence that it does not have to pay out monies.

The lack of liquidity pressure means that it can focus on longer-term investments and enjoy the unfettered benefits of compounding.

The Fund’s success – due to a combination of its arm’s length relationship with the Federal Government and an astute handling of its investments – would be a surprise to many of the early critics who argued that it should not have been set up in the first place.

The fund has delivered a return of 7.8 per cent a year since its inception in May 2006, including 10.1 per cent for the year to March 31.

Being at arm’s length from the Federal Government had been one of the key features of the fund, a principle set down by then-Treasurer Costello, who was determined that it could not be used for any political pork barrelling.

While Costello was a former Liberal Treasurer continuing in the Future Fund chair’s role under a Labor Government, his replacement Combet has close ties with the Albanese government.

In his interview with The Australian newspaper, Combet said he was thinking about “improving the engagement with government and the key public service leadership about the fund and what it should look like in the future”.

‘More like the ’30s’

Combet steps into the chair at the same time Future Fund chief executive Ralphael Arndt has warned of the increasing political uncertainty in the global investment world, warning in a recent op-ed in The Australian Financial Review that in recent decades the world has become “more like the world of the 1930s”.

Arndt, who has been working on the investment side of the Future Fund since 2008 and has been chief executive since July 2020, said the fund was planning to respond to the heightened global risk scenario by diversifying into more currencies and commodities, including gold.

But he also indicated a view which could see more focus on its domestic investment given the increasing uncertainty offshore.

“The return premium in investments in some parts of the world has to get higher because the risk is higher,” he said.

The fund already has more than $11 billion in Australian infrastructure including ports, airports and data centres.

But a potential greater focus on domestic investments and a new chair with a long-time conviction about the energy transition mean the Future Fund’s future under its new chairman will be closely watched.

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