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Future Fund Bill 2006

Part 3 Investment of the Future Fund

   

14   Simplified outline

                   The following is a simplified outline of this Part:

•      The Future Fund Board of Guardians is responsible for deciding how to invest the Future Fund.

•      Investments of the Future Fund will consist of financial assets.

•      Investments of the Future Fund will be held in the name of the Board.

•      The Board is bound by an Investment Mandate given to it by the responsible Ministers.

15   Objects of investment of the Fund

             (1)  The main object of the acquisition by the Board of a financial asset as an investment of the Fund is to enhance the ability of the Commonwealth to discharge unfunded superannuation liabilities as mentioned in paragraphs 2(a) and (b) of Schedule 2.

             (2)  The ancillary objects of the acquisition by the Board of a financial asset as an investment of the Fund are to enhance the ability of the Commonwealth and the Board to:

                     (a)  discharge liabilities, costs, expenses and obligations; and

                     (b)  make payments;

as mentioned in paragraphs 2(c) to (m) of Schedule 2.

16   Investment of the Fund

             (1)  The Board may invest amounts standing to the credit of the Fund Account in any financial assets.

             (2)  Investments under subsection (1) are to be made in the name of the Board.

             (3)  Investments under subsection (1) are taken to be investments of the Fund.

             (4)  This section does not authorise the acquisition of a derivative.

Note:          For acquisition of derivatives, see section 25.

17   Management of investments of the Fund

             (1)  Income derived from an investment of the Fund is to be credited to the Fund Account.

             (2)  A return of capital, or any other financial distribution, relating to an investment of the Fund is to be credited to the Fund Account.

             (3)  The Board may realise an investment of the Fund.

             (4)  Upon realisation of an investment of the Fund, the proceeds of the investment are to be credited to the Fund Account.

             (5)  At any time before an investment of the Fund matures, the Board may authorise the re-investment of the proceeds upon maturity in a financial asset investment with the same entity. The new investment is taken to be an investment of the Fund.

             (6)  Section 39 of the Financial Management and Accountability Act 1997 does not apply to an investment of the Fund.

18   Investment Mandate

             (1)  The responsible Ministers may give the Board written directions about the performance of its investment functions, and must give at least one such direction.

Note:          For variation and revocation, see subsection 33(3) of the Acts Interpretation Act 1901 .

             (2)  In giving a direction under subsection (1), the responsible Ministers must have regard to:

                     (a)  maximising the return earned on the Fund over the long term, consistent with international best practice for institutional investment; and

                     (b)  such other matters as the responsible Ministers consider relevant.

             (3)  Directions under subsection (1) are to be known collectively as the Investment Mandate.

             (4)  A direction under subsection (1) may set out the policies to be pursued by the Board in relation to:

                     (a)  matters of risk and return; and

                     (b)  the allocation of financial assets.

A policy relating to the allocation of financial assets must not be inconsistent with a policy relating to matters of risk and return.

             (5)  Subsection (4) does not limit subsection (1).

             (6)  The Investment Mandate prevails over subsection (10) to the extent of any inconsistency.

             (7)  The responsible Ministers must not give a direction under subsection (1) that is inconsistent with this Act (other than subsection (10)).

             (8)  A direction under subsection (1) must not take effect before the 15th day after the day on which it is given.

             (9)  A direction under subsection (1) is a legislative instrument for the purposes of the Legislative Instruments Act 2003 .

Note:          Section 42 of the Legislative Instruments Act 2003 does not apply to the direction—see section 44 of that Act.

           (10)  In the performance of its investment functions, the Board must seek to maximise the return earned on the Fund over the long term, consistent with international best practice for institutional investment.

Note:          Investment function is defined in section 5.

           (11)  Subsection (10) has effect subject to:

                     (a)  this Act; and

                     (b)  a direction under subsection (1); and

                     (c)  a direction under subclause 8(1) of Schedule 1.

           (12)  Before the first occasion on which an amount is debited from the Fund Account for the purpose of discharging, in whole or in part, an unfunded superannuation liability, the responsible Ministers must review the Investment Mandate in consultation with the Board.

Note:          If there is to be a change in the Investment Mandate, the responsible Ministers must consult the Board under section 19.

19   Board to be consulted on Investment Mandate

             (1)  Before giving the Board a direction under subsection 18(1), the responsible Ministers must:

                     (a)  send a draft of the direction to the Board; and

                     (b)  invite the Board to make a submission to the responsible Ministers on the draft direction within a time limit specified by the responsible Ministers; and

                     (c)  consider any submission that is received from the Board within that time limit.

             (2)  If:

                     (a)  the responsible Ministers give the Board a direction under subsection 18(1); and

                     (b)  the Board made a submission to the responsible Ministers on a draft of the direction within the time limit specified by the responsible Ministers;

the submission is to be tabled in each House of the Parliament with the direction.

Note:          For tabling of the direction, see section 38 of the Legislative Instruments Act 2003 .

             (3)  A time limit specified under this section must be reasonable.

20   Compliance with Investment Mandate

             (1)  The Board must take all reasonable steps to comply with the Investment Mandate.

             (2)  As soon as practicable after the Board becomes aware that it has failed to comply with the Investment Mandate, the Board must give the responsible Ministers a written statement:

                     (a)  informing the responsible Ministers of the failure to comply with the Investment Mandate; and

                     (b)  setting out the action that the Board proposes to take in order to comply with the Investment Mandate.

             (3)  If the responsible Ministers are satisfied that the Board has failed to comply with the Investment Mandate, the responsible Ministers may, by written notice given to the Board, direct the Board:

                     (a)  to give the responsible Ministers, within a period specified in the notice, a written explanation for the failure to comply with the Investment Mandate; and

                     (b)  to take action specified in the notice, within a period specified in the notice, in order to comply with the Investment Mandate.

             (4)  The Board must comply with a direction under subsection (3).

             (5)  A failure to comply with:

                     (a)  the Investment Mandate; or

                     (b)  a direction under subsection (3);

does not affect the validity of any transaction.

             (6)  A direction under subsection (3) is not a legislative instrument for the purposes of the Legislative Instruments Act 2003 .

21   Board must not trigger the takeover provisions of the Corporations Act 2001

             (1)  Section 606 of the Corporations Act 2001 does not apply to an acquisition by the Board if the acquisition is the result of a transfer under clause 6 or 7 of Schedule 1 to this Act.

             (2)  Subsections 606(1A) and (2A) and section 611 of the Corporations Act 2001 do not apply to an acquisition by the Board.

             (3)  A failure by the Board to comply with section 606 of the Corporations Act 2001 (as modified by this section) does not affect the validity of any transaction.

Note:          See also section 39 (application of the Corporations Act 2001 ).

22   Board must not have a significant stake in a foreign listed company

             (1)  The Board must take all reasonable steps to ensure that it does not hold a stake in a foreign listed company of more than 20%.

Stake

             (2)  The Financial Sector (Shareholdings) Act 1998 applies for the purposes of determining the Board’s stake in a foreign listed company, with the following modifications:

                     (a)  assume that the Board does not have any associates;

                     (b)  assume that any financial assets held by the Board were held by the Board in its own right;

                     (c)  disregard paragraph 8(1)(c) of Schedule 1 to that Act;

                     (d)  the modification set out in subsection (3).

             (3)  For the purposes of determining the Board’s stake in a foreign listed company, if, under a securities lending arrangement:

                     (a)  at a particular time (the disposal time ), the Board disposed of a financial asset (the borrowed financial asset ) to another person (the borrower ); and

                     (b)  the Board may come under an obligation to:

                              (i)  re-acquire the borrowed financial asset from the borrower at a later time; or

                             (ii)  acquire an identical financial asset from the borrower at a later time;

the borrowed financial asset is taken to be held by the Board during the period:

                     (c)  beginning at the disposal time; and

                     (d)  ending when the obligation mentioned in paragraph (b) is discharged or can no longer arise.

Validity of transactions

             (4)  A failure to comply with subsection (1) does not affect the validity of any transaction.

23   Borrowing

             (1)  The Board must not borrow money unless the borrowing is authorised by subsection (2) or (3).

             (2)  The Board is authorised to borrow money if:

                     (a)  the purpose of the borrowing is to enable the Board to cover settlement of a transaction for the acquisition of one or more financial assets; and

                     (b)  at the time the relevant acquisition decision was made, it was likely that the borrowing would not be needed; and

                     (c)  the period of the borrowing does not exceed 7 days; and

                     (d)  if the borrowing were to take place, the total amount borrowed by the Board would not exceed 10% of the balance of the Fund.

             (3)  The Board is authorised to borrow money in such circumstances (if any) as are specified in the regulations.

24   Investment policies

             (1)  The Board must formulate written policies to be complied with by it in relation to the following matters:

                     (a)  the investment strategy for the Fund;

                     (b)  benchmarks and standards for assessing the performance of the Fund;

                     (c)  risk management for the Fund;

                     (d)  a matter relating to international best practice for institutional investment;

                     (e)  a matter specified in the regulations.

Note:          For variation and revocation, see subsection 33(3) of the Acts Interpretation Act 1901 .

             (2)  The Board must ensure that policies formulated under subsection (1) are consistent with the Investment Mandate.

Publication of policies

             (3)  The Board must cause copies of policies formulated under subsection (1) to be published on the Internet.

             (4)  The Board must ensure that the first set of policies formulated under subsection (1) is published on the Internet as soon as practicable after the commencement of this section.

Review of policies

             (5)  The Board must conduct periodic reviews of policies formulated under subsection (1).

             (6)  If there is a change in the Investment Mandate, the Board must review any relevant policies formulated under subsection (1).

Compliance with policies

             (7)  The Board must take all reasonable steps to comply with policies formulated under subsection (1).

             (8)  A failure to comply with a policy formulated under subsection (1) does not affect the validity of any transaction.

Policies

             (9)  A policy formulated under subsection (1) is not a legislative instrument for the purposes of the Legislative Instruments Act 2003 .

25   Derivatives

             (1)  The Board may acquire a derivative for the purpose of:

                     (a)  protecting the value of an investment of the Fund (other than a derivative); or

                     (b)  protecting the return on an investment of the Fund (other than a derivative); or

                     (c)  achieving indirect exposure to financial assets (other than derivatives); or

                     (d)  achieving transactional efficiency;

but must not acquire a derivative for the purpose of:

                     (e)  speculation; or

                      (f)  leverage.

             (2)  The acquisition of a derivative under subsection (1) must be consistent with the investment strategy embodied in a policy formulated by the Board under subsection 24(1).

             (3)  A derivative acquired under subsection (1) is to be held in the name of the Board.

             (4)  A derivative acquired under subsection (1) is taken to be an investment of the Fund.

26   Additional financial assets

                   If, as a result of:

                     (a)  the Board’s holding of an investment of the Fund; or

                     (b)  the exercise of any rights or powers conferred on the Board in its capacity as the holder of an investment of the Fund;

the Board becomes the holder of a financial asset, that financial asset is taken to be an investment of the Fund.

27   Securities lending arrangements

             (1)  The Board may enter into securities lending arrangements.

             (2)  Any money received by the Board under a securities lending arrangement is to be credited to the Fund Account.

             (3)  To avoid doubt, a securities lending arrangement may provide for the Board to realise an investment of the Fund.

             (4)  If, as the result of the operation of a securities lending arrangement, the Board becomes the holder of a financial asset, that financial asset is taken to be an investment of the Fund.

28   Investment managers

             (1)  The Board may engage one or more investment managers.

             (2)  The Board must not:

                     (a)  invest amounts under subsection 16(1); or

                     (b)  acquire derivatives under subsection 25(1); or

                     (c)  enter into a securities lending arrangement; or

                     (d)  realise financial assets;

unless the Board does so:

                     (e)  through an investment manager engaged by the Board; or

                      (f)  in a manner approved, in writing, by the responsible Ministers.

             (3)  The Board must ensure that any investment manager engaged by the Board operates within this Act.

             (4)  The Board must ensure that any investment manager engaged by the Board reports to the Board and the Agency on the state of the investments of the Fund at such times and in such manner as the Board determines.

29   Custody of securities

                   Section 40 of the Financial Management and Accountability Act 1997 does not apply to an investment of the Fund.

30   Exemption from taxation

Income tax

             (1)  To avoid doubt, for the purposes of section 50-25 of the Income Tax Assessment Act 1997 , the Board is taken to be a public authority constituted under an Australian law.

Note:          This means that the Board is exempt from income tax.

State/Territory taxes

             (2)  To avoid doubt, the Board is not subject to taxation under a law of a State or Territory, if the Commonwealth is not subject to the taxation.

31   Franking credits

             (1)  For the purposes of the Income Tax Assessment Act 1997 , the Board is taken to be an exempt institution that is eligible for a refund.

Note:          See Division 207 of the Income Tax Assessment Act 1997 (franked distributions).

             (2)  Subsection (1) has effect despite subsection 207-115(1) of the Income Tax Assessment Act 1997.

             (3)  For the purposes of the Income Tax Assessment Act 1997 , the Board’s entitlement to a tax offset is to be determined as if any financial assets held by the Board were held by the Board in its own right.

             (4)  If the Board receives a refund of a tax offset under the Income Tax Assessment Act 1997, the refund is to be credited to the Fund Account.

Note:          For refunds of tax offsets, see section 67-30 of the Income Tax Assessment Act 1997 .

32   Realisation of non-financial assets

             (1)  If an asset held by the Board as an investment of the Fund ceases to be a financial asset:

                     (a)  the Board must realise the asset as soon as practicable after the Board becomes aware of the cessation; and

                     (b)  this Act (other than this section) applies in relation to the asset (including in relation to the realisation of the asset) as if the asset had remained a financial asset, and an investment of the Fund, until the realisation.

             (2)  If an asset acquired by the Board, purportedly as an investment of the Fund, is not a financial asset:

                     (a)  the Board must realise the asset as soon as practicable after the Board becomes aware that the asset is not a financial asset; and

                     (b)  this Act (other than this section) applies in relation to the asset (including in relation to the realisation of the asset) as if the asset had been a financial asset, and an investment of the Fund, from the time of its acquisition by the Board until the realisation.