Future Generation Australia chair Philip Lowe’s on a mission to rebuild optimism
Ex-RBA boss, now Future Generation Australia chair Philip Lowe, is a ‘glass half full’ kind of man – and he’s on a mission to make us all more optimistic.
Philip Lowe is pondering an alternate reality. A mathematical variation on the present one.
It centres on the figure 1.25 per cent – the very modest rate, historically speaking, at which Australian productivity might have grown annually across the last seven years, if braver government policies had been in place.
“Just imagine, if someone offered you a real income rise of 9 per cent today. You’d be feeling much better, and you wouldn’t be saying you’re in a cost-of-living crisis. You’d be thinking, well, things are pretty good.”
Dr Lowe wants Australians to feel that things are pretty good. He wants everyone – from asset managers to personal carers – to feel confident about their place in the world, and have the courage to take steps that will benefit future generations. It’s a tenet that has fed into his decisions as Reserve Bank governor, his outlook on the economy today, and his work as chair of the ASX-listed Future Generation Australia Fund, a passion project that gives 1 per cent of its assets annually to charity.
“We have to start telling people that this is the best country in the world and that we’re damn lucky,” Lowe tells The Australian. “And we should focus on that.”
Source of the problem
In actual fact, national productivity growth has stuck stubbornly close to zero for the past seven years. That’s well below forecasts set by the Reserve Bank, which has little control over the efficiency of national output and is dependent on governments for heavy lifting on the policy side.
“Just to put this in context – if you accumulate that over six or seven years, that’s a loss of output in the economy of 8 or 9 per cent,” says Lowe.
“That means your real income would be 9 per cent higher, and we would have had higher asset returns, as well.
“That’s the source of the cost of living – shall I use the word ‘crisis’? It’s not interest rates. Interest rates have probably suppressed aggregate demand by 1 per cent this year; the lack of productivity growth over that time has suppressed demand now by 9 per cent (today). So that’s the source of the problem.”
Where interest rates cycle up and down, the productivity rate is a more permanent number, and it’s accumulating, Lowe points out. “There are no swings and roundabouts in productivity – it’s just a swing, it’s a loss.
“We’ve had our living standards rising quickly for decades, and that’s no longer happening, and people are getting unhappy about it,” he adds.
“And we’ve got to do something about that. The problem isn’t an economic one – we kind of know broadly what to do. It’s a political one – our society has lost the ability to form coalitions to implement difficult things that in the short run will hurt some people, but are good for our kids.
“And we’re now seeing the consequences.”
Making a difference
One per cent is also the average outperformance of the Lowe-chaired Future Generation Australia Fund against the S&P/ASX 200 index, since its inception 10 years ago. In this role, Lowe is focused squarely on the living standards of those most at risk.
The listed investment company – which holds around $600m in funds and is run entirely by managers and a board who forgo all fees for their work – each year gives 1 per cent of its assets to charities focused on children and youths.
It didn’t take Lowe long to join after leaving the Reserve Bank – replacing Mike Baird as chair – in the only role he took within a self-imposed sabbatical of 12 months.
“It was a fairly intense time … I was reading that I was the most unpopular person in Australia,” he says, referring to a period where media camped outside his house, and followed his wife at the supermarket, after the Reserve Bank lifted the cash rate from record lows.
Working with like-minded people, who want to give back to society, was a positive.
“I found a group of people who were about more than just themselves, they were trying to make a difference, and doing stuff for free, giving up their time and their expertise to help kids. So that was very attractive to me.”
Lowe’s goal is to amplify of their efforts. At wealth management functions, his three-part pitch focuses on the fund’s ASX200-beating returns, lower volatility and steady dividends – as well as opportunities to help kids in need. “And I say, why isn’t that a part of your portfolio?”
Last week, Future Generation Australia posted a 2024 portfolio return of 13 per cent (against the ASX-200’s 11.4 per cent) with total shareholder returns of 23.5 per cent, including franking credits. Its operating profit after tax was $47.9m, with more than $5m donated to charities over the year.
(A sister fund, Future Generation Global – not chaired by Lowe, but sharing the same chief executive in Caroline Gurney — booked an operating profit after tax of $97.7m, up 75.3 per cent, and total shareholder returns of 28.9 per cent including franking credits).
“The Investment Committee remains confident that our portfolio of 17 boutique fund managers will continue to deliver superior returns with lower risk,” Gurney says of Future Generation Australia. But Lowe wants the fund to be bigger.
The challenge he’s issued is to bring its share price to par with the fund’s net tangible assets, up from its current 10 per cent discount (narrowed from 17 per cent a year ago).
That would enable the fund to issue more shares – to the tune of $200m – which, along with accumulating returns and some dividend investments, could bring its total assets to $1bn.
“He’s given us five years to make it happen,” says Gurney. “That’s the plan.”
Giving back
The whole point is to give more money back. “There’s so much need out there, with kids,” says Lowe. “If a kid has an adverse event early in their life, say before they’re 10 or 14, it leaves a shadow with them, probably until they’re 80 – if they make it that far.
“And the adverse event could be homelessness, drug abuse by the parents, sickness, domestic abuse, extreme bullying.
“You have no control over it all, it’s just because of bad luck or the parenting or the environment, and it leaves a shadow with you for the rest of your life.
“The thing that gets to me is the inherent unfairness of it all — this is fundamentally wrong. … there’s so many terrible stories, and you think ‘oh these poor kids’. And it’s not right.”
Among the investors in Future Generation Australia are institutions, charities themselves – some of whom are able to cover their own operating costs with returns from the fund – and individuals, who have the option to choose which non-profits to direct their portion of funds to, among the LIC’s donor list.
Gurney says it’s “an amazing conversation to have with your family around the table: how do we give back?”. “I talk to our shareholders, and they have that conversation with their children and grandchildren,” she says.
For Lowe, seeing the fund’s money in action underlines the responsibility of those with opportunities to go back and try to help others have successful lives.
“Visiting charities like Lighthouse and Giant Steps – which helps kids with autism – it’s so impressive seeing the care that the carers have.
“They’re sitting with these kids in small groups, helping them, and you can see the care and compassion and love for them.”
AI boost
Over the long term, Lowe expects advances in artificial intelligence – and improvements in all areas of science – to boost living standards across Australia. Education is another opportunity to lift prosperity.
“At least in principle, I think that will work … if society can keep together and have good policy, then over time that will get redistributed.”
But the other point he wants to drive home – amid uncertainties across the Middle East, China and Russia, and the precarious role of the US – is how lucky we are in Australia.
“We can focus on the uncertainties; every day we’re told how uncertain the world is – and every day in the newspaper we’re told we’ve got all these crises. A cost of living crisis, or this crisis, or that.
“But actually, Australia is the best place in the world in which to live.
“We have one of the highest standards of living in the world, a fantastic health system, good public services, fantastic natural environment, good weather, and by and large social harmony – people live together in peace, broadly.
“I mean, there are expectations to all these things, but too often people are focusing on the negatives.
“And it frustrates me, because I’m inclined to think of the glass being half full, rather than half empty. And in Australia it is three quarters full.”