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Part 4—Investment of the Emergency Response Fund

Part 4 Investment of the Emergency Response Fund

   

35   Simplified outline of this Part

•      The Future Fund Board is responsible for deciding how to invest the Emergency Response Fund.

•      Investments of the Emergency Response Fund consist of financial assets, and are held in the name of the Future Fund Board.

•      The Future Fund Board is bound by the Emergency Response Fund Investment Mandate given to it by the responsible Ministers.

36   Objects of investment of the Emergency Response Fund

             (1)  The main objects of the acquisition by the Future Fund Board of a financial asset as an investment of the Emergency Response Fund are to enhance the Commonwealth’s ability to transfer amounts in accordance with sections 28, 28A, 32 and 32A.

             (2)  The ancillary objects of the acquisition by the Future Fund Board of a financial asset as an investment of the Emergency Response Fund are to enhance the ability of the Commonwealth and the Future Fund Board to discharge the costs, expenses, obligations and liabilities mentioned in sections 15 and 16.

37   Investment of the Emergency Response Fund

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

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

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

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

Note:          For acquisition of derivatives, see section 47.

38   Management of investments of the Emergency Response Fund

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

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

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

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

             (5)  At any time before an investment of the Emergency Response Fund matures, the Future Fund 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 Emergency Response Fund.

             (6)  Section 58 of the Public Governance, Performance and Accountability Act 2013 (which deals with investment by the Commonwealth) does not apply to an investment of the Emergency Response Fund.

39   Emergency Response Fund Investment Mandate

             (1)  The responsible Ministers may (subject to section 41) give the Future Fund Board written directions about the performance of its Emergency Response Fund investment functions, and must give at least one such direction.

Note 1:       Emergency Response Fund investment function is defined in section 4.

Note 2:       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)  the need to maximise the return earned on the Emergency Response Fund over the long term, consistent with international best practice for institutional investment; and

                     (b)  the need to enhance the Commonwealth’s ability to:

                              (i)  pay amounts payable by the Commonwealth under an arrangement made under section 20; and

                             (ii)  make grants under section 20; and

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

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

             (4)  Without limiting subsection (1), a direction under that subsection may set out the policies to be pursued by the Future Fund 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.

Relationship between directions and other provisions of this Act

             (5)  A direction under subsection (1):

                     (a)  prevails over section 40 to the extent of any inconsistency; and

                     (b)  must not otherwise be inconsistent with this Act.

When direction takes effect

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

Direction is a legislative instrument

             (7)  A direction under subsection (1) is a legislative instrument.

Note 1:       Section 42 (disallowance) of the Legislation Act 2003 does not apply to the direction—see regulations made for the purposes of paragraph 44(2)(b) of that Act.

Note 2:       Part 4 of Chapter 3 (sunsetting) of the Legislation Act 2003 does not apply to the direction—see regulations made for the purposes of paragraph 54(2)(b) of that Act.

40   Obligation on Future Fund Board in performing investment functions

                   In performing its Emergency Response Fund investment function, the Future Fund Board must (subject to this Act and a direction under subsection 39(1)) seek to maximise the return earned on the Emergency Response Fund over the long term, consistent with international best practice for institutional investment.

41   Limitation on Emergency Response Fund Investment Mandate

             (1)  The responsible Ministers must not give a direction under subsection 39(1) that has the purpose, or has or is likely to have the effect, of directly or indirectly requiring the Future Fund Board to:

                     (a)  invest an amount standing to the credit of the Emergency Response Fund Special Account in a particular financial asset; or

                     (b)  acquire a particular derivative; or

                     (c)  allocate financial assets to:

                              (i)  a particular business entity; or

                             (ii)  a particular activity; or

                            (iii)  a particular business.

             (2)  Paragraphs (1)(a) and (b) do not limit paragraph (1)(c).

42   Future Fund Board to be consulted on Emergency Response Fund Investment Mandate

             (1)  Before giving the Future Fund Board a direction under subsection 39(1), the responsible Ministers must:

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

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

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

             (2)  Any submission made by the Future Fund Board on a draft direction in accordance with paragraph (1)(b) must be tabled in each House of the Parliament with the direction.

Note:          As the direction is a legislative instrument, it is also tabled in each House of the Parliament under section 38 of the Legislation Act 2003 .

43   Compliance with Emergency Response Fund Investment Mandate

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

             (2)  If the Future Fund Board becomes aware that it has failed to comply with the Emergency Response Fund Investment Mandate, the Board must give the responsible Ministers a written statement, as soon as practicable after becoming so aware:

                     (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 Future Fund Board has failed to comply with the Emergency Response Fund 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 Future Fund Board must comply with a direction under subsection (3).

             (5)  A failure to comply with:

                     (a)  the Emergency Response Fund 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.

44   Future Fund Board must not trigger the takeover provisions of the Corporations Act 2001

             (1)  Subsections 606(1A) and (2A) and section 611 of the Corporations Act 2001 do not apply to an acquisition by the Future Fund Board if the acquisition is the result of the performance by the Future Fund Board of its Emergency Response Fund investment functions.

             (2)  A failure by the Future Fund 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 of the Future Fund Act 2006 (application of the Corporations Act 2001 ).

45   Borrowing

             (1)  The Future Fund Board must not borrow money for a purpose in connection with the Emergency Response Fund unless the borrowing is authorised by subsection (2) or (3).

             (2)  The Future Fund Board is authorised to borrow money for a purpose in connection with the Emergency Response Fund 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 Future Fund Board is authorised to borrow money for a purpose in connection with the Emergency Response Fund if the borrowing takes place in such circumstances (if any) as are specified in the rules.

46   Emergency Response Fund investment policies

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

                     (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 rules.

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

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

Publication of policies

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

             (4)  The Future Fund Board must ensure that a copy of 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 Future Fund Board must conduct periodic reviews of policies formulated under subsection (1).

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

Compliance with policies

             (7)  The Future Fund 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.

47   Derivatives

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

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

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

                     (c)  achieving indirect exposure to financial assets (other than derivatives) for a purpose in connection with the Emergency Response Fund; or

                     (d)  achieving transactional efficiency for a purpose in connection with the Emergency Response Fund;

but must not acquire a derivative for the purpose of speculation or leverage.

             (2)  The acquisition of a derivative under subsection (1) of this section must be consistent with the investment strategy embodied in a policy formulated by the Future Fund Board under subsection 46(1).

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

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

48   Additional financial assets

                   An asset is taken to be an investment of the Emergency Response Fund if the Future Fund Board becomes the holder of the financial asset 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.

49   Securities lending arrangements

             (1)  The Future Fund Board may enter into securities lending arrangements for a purpose in connection with the Emergency Response Fund.

             (2)  Any money received by the Future Fund Board under a securities lending arrangement entered into under subsection (1) is to be credited to the Emergency Response Fund Special Account.

             (3)  To avoid doubt, a securities lending arrangement entered into under subsection (1) may provide for the Future Fund Board to realise an investment of the Emergency Response Fund.

             (4)  A financial asset is taken to be an investment of the Emergency Response Fund if, as the result of the operation of a securities lending arrangement entered into under subsection (1), the Future Fund Board becomes the holder of the financial asset.

50   Investment managers

             (1)  The Future Fund Board may engage one or more investment managers for purposes in connection with the Emergency Response Fund.

             (2)  The Future Fund Board must not:

                     (a)  invest amounts under subsection 37(1); or

                     (b)  acquire derivatives under subsection 47(1); or

                     (c)  enter into a securities lending arrangement under subsection 49(1); or

                     (d)  realise financial assets that are investments of the Emergency Response Fund;

unless the Board does so:

                     (e)  through an investment manager engaged by the Board under subsection (1) of this section; or

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

             (3)  The Future Fund Board must ensure that any investment manager engaged by the Board under subsection (1) operates within this Act.

             (4)  The Future Fund Board must ensure that any investment manager engaged by the Board under subsection (1) reports to the Board and the Agency on the state of the investments of the Emergency Response Fund at such times and in such manner as the Board determines.

51   Refund of franking credits

                   A refund of a tax offset under the Income Tax Assessment Act 1997 is to be credited to the Emergency Response Fund Special Account if:

                     (a)  the Future Fund Board receives the refund; and

                     (b)  the tax offset is attributable to an investment of the Emergency Response Fund.

Note 1:       See also section 84B of the Future Fund Act 2006 .

Note 2:       For refunds of tax offsets, see Division 63 of the Income Tax Assessment Act 1997 .

52   Realisation of non-financial assets

             (1)  This section applies if the Future Fund Board becomes aware of the fact that:

                     (a)  an asset held by the Board as an investment of the Emergency Response Fund has ceased to be a financial asset; or

                     (b)  an asset acquired by the Board, purportedly as an investment of the Emergency Response Fund, is not a financial asset.

             (2)  The Future Fund Board must realise the asset as soon as practicable after the Board becomes aware of the fact.

             (3)  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 Emergency Response Fund, from the time of its acquisition by the Future Fund Board until the realisation.

53   Additional function of the Future Fund Board

                   The functions of the Future Fund Board include the function of investing amounts in accordance with this Act.