Asleep at the wheel: Peter Costello slams regulators over royal commission revelations
Future Fund chairman Peter Costello has slammed the role of the financial regulators in the wake of the revelations that have come from the banking royal commission.
While announcing a bumper return for the Future Fund for the year to June 30 of 9.3 per cent, the former federal treasurer and current chairman of Nine Entertainment, said: "Where was ASIC (Australian Securities and Investments Commission) when all of this was happening?"
"And I think that is the next step of the royal commission is to actually find out why the regulatory agencies weren't awake and at the wheel."
Mr Costello said other likely consequences of the royal commission include that the banks will "not be so profitable" as they face higher costs in complying with more regulation.
He also expects credit will be harder to obtain and that banks are likely to make out-of-cycle interest rate hikes on their loans.
"The Australian banks borrow a lot of money offshore, particularly in the US and US [interest] rates are rising and, so, I think they will be looking to increase rates- some have done that already," Mr Costello said.
Mr Costello said the Future Fund continues to strengthen the government's long-term financial position with a 10-year average annual compound return of 8.7 per cent, exceeding its benchmark of 6.6 per cent.
That has outpaced the return of the typical balanced investment options of the large super funds, which returned 6 per cent over the 10 years, with higher volatility of those returns.
However, the sovereign wealth fund has a significant advantage over large super funds, in that the Future Fund can invest knowing there will be no withdrawals from the fund for many years.
Super funds must invest in way that provides liquidity to be able to pay members withdrawals.
The particularly good result of the Future Fund over the past year has been helped by the "sustained synchronised growth" around the world, Mr Costello said.
However, he cautioned that over the medium and longer terms there are a number of risks.
"Inflationary pressures may soon emerge in the US, and as interest rates around the world
begin rising towards more normal levels we expect to see downward pressure on asset prices.
"International political and trade tensions continue to impact markets and the potential for
further shocks remains," he said.
The Future Fund board manages five public asset funds with specific purposes, of which the Future Fund, with assets of $145.8 billion as at 30 June 2018, is by far the largest.
These other funds include the Medical Research Future Fund, DisabilityCare Australia Fund, the Education Investment Fund and the Building Australia Fund which, in total, have less than $30 billion.