Are we comfortable with this arrangement?

Australia’s sovereign wealth fund, the Future Fund, was created in 2006.

In its first two years, it was handed $60.5 billion by the federal government to invest on behalf of all Australians.

Those billions came from federal budget surpluses in 2004, 2005 and 2006 and the sale of the government’s remaining Telstra shares.

Since that time, the fund has never received another capital injection on top of its original $60.5 billion.

But its total value is now $229.7 billion (as of 30 September 2024).

How did it do that?

Because it has made total returns of $169.2 billion from investing globally in stocks, bonds, property, infrastructure, and financial derivatives over the last 18 years.

But are Australians aware of how some of those returns have been made on their behalf?

For example, do they know the Future Fund currently holds more than half a billion dollars worth of shares in weapons manufacturers and war-related companies, and that the value of many of those shares has increased dramatically in the last year, helping to support the fund’s financial “performance”?

The Future Fund is required to maximise returns on behalf of Australians.

But there are more than 50,000 stocks being traded on the world’s many public stock exchanges right now.

Does the fund feel there are no other publicly-listed companies that generate similar profits, or similar dividends, or that show better growth potential, than weapons manufacturers?

Let’s take a look at some of those companies to see why the Future Fund’s experts think they’re worth investing in.

The best of the best of global stocks?

In December last year, following a Freedom of Information (FOI) request from Greens senator David Shoebridge, the Future Fund released a list of 30 “defence companies” it had direct holdings in (i.e. global weapons manufacturers and aerospace companies).

You can see the list here.

It showed the value of the Future Fund’s holdings in those 30 companies was $604.5 million (as of 30 October 2023).

But a bit has changed since then.

As of June this year, eight months later, according to the Future Fund’s most recent Periodic Investment Report (30 June 2024), the value of the fund’s shareholdings in that same list of 30 companies was $503.3 million.

So, it’s worth $100 million less.

But that’s not because all of those shares have lost money since October last year.

Importantly, in February this year, the Future Fund sold all of its shares in Rocket Lab USA, which was the biggest holding on the list. Those shares were worth a whopping $192.2 million for its equities portfolio.

It’s also added Leonardo SPA to its official exclusions list (its shareholding was worth $563,740 last year), and it no longer holds its Jamco Corporation shares (worth $25,851 last year).

But for the remaining companies on the original list, the value of the fund’s holdings has soared for many since October last year.

See the table below, which I’ve put together.

It shows the total market value of the fund’s shareholdings in those 30 companies in October 2023, and in June 2024.

Now, bear in mind the table above doesn’t make it clear if the value of each shareholding has increased because the share price of each company has surged, or because the Future Fund has bought more shares in each company, or both.

But it clearly shows something interesting.

It shows significant increases in the value of its holdings in the last year in BAE Systems (+87.5 per cent), Howmet Aerospace (+75.9 per cent), Melrose Industries (+77.3 per cent), Rolls Royce Holdings (+159.1 per cent), SAAB (+99 per cent), and Transdigm Group (+71.2 per cent), among many others.

These are financial assets accumulated on behalf of all Australians. Of course, some of those companies make major earnings from civilian projects too, including Airbus, Rolls Royce, and Boeing.

And check out the growth in the value of the Future Fund’s holdings in Elbit Systems (on page 2 of the table).

It has jumped from $488,768 to $1.33 million, an increase of 172 per cent, which is the fastest growth of any company on the list.

What makes Elbit Systems so special?

Elbit Systems, Israel’s largest private weapons manufacturer, has recently been embroiled in controversy in Australia.

The company is infamous for its drone technology, among other things.

Its Hermes 450 drone was reportedly used in an Israel Defense Forces strike that killed Australian aid worker Zomi Frankcom in April this year, along with six of her colleagues, when the cars in their convoy were targeted and bombed after they had just finished delivering humanitarian food packages in central Gaza.

You can read an official report on that incident here, from Australia’s special adviser, Air Chief Marshal Mark Binskin AC.

Elbit’s drones have also killed countless Palestinian and Lebanese civilians.

Earlier this year, a public petition to Australia’s parliament called on the federal government to ban Elbit Systems from receiving Commonwealth government contracts.

In response to the petition, the federal Minister for Defence Industry, Pat Conroy, said the government wasn’t going to boycott Israeli businesses.

In the same interview with the ABC, Mr Conroy said the government had multiple important contracts with Elbit Systems.

“We’ve got a few contracts with Elbit for delivery of capability for the Australian Defence Force,” he said.

“Two examples are $9 million to maintain and repair thermal imaging equipment, and another contract for some drones for the Australian Army,” he said.

The Albanese government is investing more than $10 billion on drones, purchased from multiple countries.

Antony Loewenstein, in his award-winning book The Palestine Laboratory: How Israel Exports The Technology of Occupation Around the World (2023), explains how Elbit Systems has a central place in Israel’s huge weapons exporting industry.

And last month, when Elbit Systems published its third-quarter profit results, it said it currently has a record order backlog worth $US22.1 billion ($33.9 billion).

“Elbit Systems reports a strong quarter, with substantial growth across key performance measures exceeding our internal goals, while meeting our customers’ needs in Israel and worldwide,” Bezhalel Machlis, president and chief executive of Elbit Systems, said in a statement.

“The company’s order backlog, which hit a record high of over $22 billion, provides stability and resilience for the company for years to come, as our investments in R&D create strong foundations for long-term growth and development,” he said.

In the last 12 months, Elbit Systems’ share price has jumped 18 per cent.

Palantir Technologies and the growing surveillance state

Or step away from that list of 30 “defence companies” the Future Fund invests in.

There are similar companies that aren’t on the list which are also worth looking at. They all have unique stories.

For example, according to its Periodic Investment Report (30 June 2024), the Future Fund now owns $5.5 million worth of shares in Palantir Technologies.

That company sits on the frontier of big data analytics, intrusive government, and the national security and surveillance state.

One of its co-founders is the US billionaire Peter Thiel, who thinks freedom and democracy are no longer compatible.

The Future Fund’s investment experts must think there are profits to be made from modern surveillance networks and the global crackdown on privacy.

If you haven’t heard of Palantir Technologies, this Forbes piece from 2013 is a good place to start: “How A ‘Deviant’ Philosopher Built Palantir, A CIA-Funded Data-Mining Juggernaut.”

Or look at things from another angle.

Consider the list of companies the Future Fund is happy to invest in, but which Norway’s $2.6 trillion sovereign wealth fund — a global leader in environmental, social and governance (ESG) investing principles — has put on its exclusion list.

They include:

• Airbus SE (Norway has excluded it since 2006 under the category “production of nuclear weapons”)
• BAE Systems (excluded since 2018: production of nuclear weapons)
• Boeing Co (2006: production of nuclear weapons)
• Elbit Systems (2009: Other particularly serious violations of fundamental ethical norms)
• General Dynamics (2024: production of nuclear weapons)
• Honeywell International (2006: production of nuclear weapons)
• L3Harris Technologies (2024: production of nuclear weapons)
• Lockheed Martin (2013: production of nuclear weapons)
• Northrop Grumman Corp (2006: production of nuclear weapons)
• Textron (2009: production of cluster munitions), among others.

In November last year, then-chairman of the Future Fund Board of Guardians, Peter Costello, said Australia’s Future Fund was created with a clear purpose in 2006.

“The purpose of the Future Fund is intergenerational wealth transfer,” he said.

“The people who manage the Future Fund are called Guardians. The name was chosen for a reason.

“It is important that the Guardians have the strength and stature to defend the fund and a clear focus on the long-term benefit of future Australians,” he said.

But is it worth thinking about what kind of legacy the fund’s guardians are actually protecting?

It is strictly financial? Or does the legacy involve things other than money?

In the last 12 months, journalistic gadflies like Michael West, a former business editor for the Sydney Morning Herald, have been pestering the Future Fund with annoying questions about its investments.

Mr West says that, so far, the Future Fund has not been very forthcoming with answers.

But now that Treasurer Jim Chalmers has started a conversation about the Future Fund’s investment mandate, is it time we all started talking about its larger legacy, and the nature of its “wealth” we plan to hand to future Australians?