Australia's Prime Minister Says Superannuation Trumps Sovereign Wealth Fund

Australia's Prime Minister Julia Gillard is adamant that the nation's trillion-dollar superannuation regime is sufficient, ruling out the need for a sovereign wealth fund.

(August 31, 2011) — In response to domestic and international pressure, Australia’s Prime Minister Julia Gillard has asserted that the country’s superannuation regime is robust enough to stand in the place of a sovereign wealth fund.

“That’s because it’s privately managed by thousands of trustees instead of a sovereign wealth fund managed centrally by a Canberra-appointed manager,” Gillard said in an address to the Financial Services Council in Sydney, Money Management reported. “Or alternatively, you could say that Australia has 8 million sovereign wealth funds–the superannuation accounts of Australians across the country.”

While trade unions and institutions worldwide have urged the Australian government to create a sovereign wealth fund, Gillard has asserted that superannuation is already a trillion-dollar sovereign wealth fund–but with market benefits. “That’s because it’s privately managed by thousands of trustees, instead of a sovereign wealth fund managed centrally by a Canberra-appointed manager,” she said.

This is not the first time that widespread calls for Australia to establish a commodity-backed sovereign wealth fund has been met with stiff resistance. Australia is faced with the question of what to do with the proceeds of a large surge in demand for its vast deposits of coal and iron ore. At the heart of the dispute is whether Australia should try to emulate Norway by establishing a sovereign wealth fund or rather impose a tax on mining profits as the best way of capitalizing on the boom. In May, the International Monetary Fund (IMF) urged Australia to create a sovereign wealth fund to protect the country against a possible Asian market bubble. IMF director Anoop Singh said at the time that the revenue from the current resources boom should be saved “to ensure a more equal distribution of its benefits across generations and reduce long-term fiscal vulnerabilities from an aging population and rising health care costs.”

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Similarly, in April, Robert Mead, managing director and head of portfolio management at Pacific Investment Management Co. (PIMCO), told Dow Jones Newswires that Australia should create a sovereign wealth fund to manage the proceeds of its mining boom.

The Australian government may be wise to use Norway’s oil fund, Norges Bank Investment Management, as the archetype, Mead asserted. “The Norges bank model has obviously been a very successful model,” he told Dow Jones, adding that for Australia’s model, “quarantining the additional revenues raised from the resources boom should be fed into a long-term fund structure.”

Click here to see GC Australia — a sister publication to aiCIO — that focuses on the Australian superannuation and alternative fund industry, from a securities services perspective.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

With US Investment, the Caisse Encounters Harsh Criticism

Canada's Caisse de dépôt et placement du Québec is facing scrutiny for US investment amid pressure to foster the province’s economic development.

(August 31, 2011) — The Caisse de dépôt et placement du Québec is encountering criticism for investments in the United States, thus failing to promote the province’s economic development.

Parti Québécois Leader Pauline Marois has been vocal in lambasting Canada’s largest pension fund manager for lending $211-million to Montreal-based Kruger Products LP to expand a tissue mill in Memphis, Tenn. According to Marois, the move by Caisse shows that it “has lost its soul,” failing to sufficiently stimulate Quebec’s economy.

In response to the criticism, the Caisse issued a statement. “Homegrown companies must go where the markets for their products are and cannot rely only on the Quebec market,” Normand Provost, executive vice-president, private equity and chief operations officer at the Caisse, said in a release. “We strongly believe that one of the ways for the Caisse to help nurture champion Quebec job creators is to support them in their expansion in new markets,” he said.

Additionally, the Caisse noted that it decided to provide a loan to Kruger following the understanding that the expansion of the Memphis facility presents an opportunity to heighten the returns to the fund’s Quebec depositors amid efforts to strengthen its foothold in North America.

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The recent pressures on the fund to invest in Quebec is nothing new. In March, the fund said that its investments in publicly traded Quebec companies grew by more than $800 million or 38%, over the past 15 months as it gave a greater weighting to local firms and provided portfolio managers with more flexibility to make investments in Quebec rather than the broader Canadian benchmark, which is largely fueled by energy and materials stocks. Furthermore, the fund said it integrated the new National Bank Quebec Index, which focuses solely on Québec-based companies, into its reference index for the Canadian Equity portfolio.

“When it comes to investing in Québec, the Caisse has an undeniable comparative advantage vis-à-vis its peers: close long-term relationships with the vast majority of companies and an excellent knowledge of the challenges they are facing,” said Jean-Luc Gravel, Caisse’s Executive Vice-President, Equity Markets, in a statement. “This comparative advantage has led us to target the Québec market, which holds many promising companies, to generate returns while contributing to Québec’s economic development. We believe the two go hand in hand.” He added that one of the fund’s priorities is to assist Quebec companies with growth potential domestically and abroad by sharing expertise and resources.

In November 2010, Chief Executive Michael Sabia asserted that the Caisse wanted to help Quebec companies by identifying competent, dynamic small and medium-sized companies in Quebec that can benefit from its expertise and support to broaden their global presence.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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