Australia’s sovereign wealth fund Future Fund to dump companies listed on Russian stock exchange

The sovereign wealth fund is ditching its remaining $200m exposure to companies listed on the Russian stock exchange amid a financial backlash against the invasion of Ukraine.

The Future Fund, which is chaired by Peter Costello, pictured right with Treasurer Josh Frydenberg, will wind down its remaining $200m exposure to companies listed on the Russian stock exchange. Picture: Nicki Connolly

The Future Fund will wind down its $200m exposure to companies listed on the Moscow exchange as some of the world’s largest funds dump their investments in response to the invasion of Ukraine.

Some of Australia’s largest investors, including superannuation giant AustralianSuper, have holding in several Kremlin-connected Russian energy companies.

The nation’s sovereign wealth fund had $204bn in assets at the end of last year, with no holdings in Russian sovereign debt or other fixed income.

However, a spokesman said the fund, which is chaired by former Howard government treasurer Peter Costello, holds about 0.1 per cent of its portfolio in listed Russian stocks.

“We will be winding down the remaining exposure, which is not currently subject to divestment sanctions, as market conditions permit,” he said. “The Future Fund has implemented all sanctions imposed by Australia, the US and the European Union to date.

“We have devoted significant resources to compliance and will continue to do so as additional sanctions are announced.”

Josh Frydenberg and Finance Minister Simon Birmingham said they supported the Future Fund’s move. “The Australian government reiterates our staunch support for Ukraine’s sovereignty and territorial integrity and for the people of Ukraine,” the Treasurer and Senator Birmingham said.

Meanwhile, billionaire Fortescue Metals chairman Andrew Forrest told the ABC on Monday that the company’s renewables arm would pull back from green projects under way in Russia. “We have been trying to work with Russia for some time. We’ve made it incredibly clear that you just have no excuse to go and invade another country,” he said.

Risk-conscious local financial institutions have mostly given Russia a wide berth or plan to exit relatively small exposures.

NSW Treasurer Matt Kean said on Monday it was an important time for liberal democracies to stand with Ukraine and “stand up for our values”. “The NSW government intends to sell its holdings of Russian assets in its investment funds,” he said.

NSW state-managed funds have about $112bn in assets.

About 12 per cent of the $15bn NSW Generations Fund is invested in emerging markets, of which 0.5 per cent – about $75m – is in Russian debt and equities.

Portfolio weightings are similar in the Victorian Funds Management Corporation, which has $75bn in assets.

Of that, 30 per cent is in international equities, with Russia about 0.5 per cent of the portfolio.

A spokesperson said the Victorian government did not have any direct investments in Russian government bonds or instruments, and was not aware that Russia held any Victorian government bonds.

The nation’s biggest superannuation fund, AustralianSuper with $260bn in member assets, declined to comment.

However, its disclosure documents revealed that the fund’s balanced option has an investment of about $75m in three companies with links to the Putin regime: oil and gas producers Rosneft, Gazprom and Lukoil.

Aware Super, which has $160bn in assets under management, said it had taken immediate steps last week to sell down its direct exposure to Russian assets.

The fund, according to a spokesman, said it had identified an “extremely small” direct ­exposure equal to about 0.03 per cent of total assets, or about $45m.

“We have no direct exposure to Ukraine,” he said. “We are also issuing instructions to all the asset managers we work with to ensure no new investments in Russia come into our portfolio.”

The Future Fund, for its part, also has about $500m invested in arms, munitions and defence companies whose share prices have steadily risen since Russia invaded Ukraine.

These include arms manufacturer BAE Systems, nuclear supplier BWX Technologies and Lockheed Martin, which have over the past five days recorded share price increases of 10.77 per cent, 11.44 per cent and 5.23 per cent.

The share prices of nuclear weapon manufacturers Honeywell International and Northrop Grumman have also risen over the last five days by 2.52 and 3.06 per cent.

American defence conglomerate Raytheon Technologies, in which the fund has invested more than $90m, has risen 4.23 per cent over the same period.

AMP chief economist Shane Oliver said the conflict between Russia and Ukraine would increase investment in the defence and technology sectors.

“In any war there’s key beneficiaries and high on the list is defence stocks, so there will be an increase in demand for armaments and lethal weapons, some of which will be used up in this conflict,” he said.

The defence companies are included in standard investment portfolios.

Some of the big European asset managers such as the Norwegian sovereign wealth fund – the world’s biggest – will also take action on their portfolios.

The arm of the Norwegian central bank which operates the $US1.3 trillion fund said on Sunday it was freezing investments in Russia.

The fund will neither buy nor sell shares immediately but will work with the Ministry of Finance to prepare a plan to divest from the Russian market.

ANZ, which was caught in the Russian bond crisis in the 1990s, had learnt its lesson and now has a “negligible” exposure to the country, according to a spokesman.

In the late 1980s and for most of the 1990s, ANZ was trading profitably in emerging markets, earning $270m in pre-tax profit over a decade. Then chief executive John McFarlane, who is now Westpac chair, lost his nerve after some losses when the Russian economy began to tank in 1998.

ANZ suffered trading losses of $188m and took a $100m writedown.

Mr McFarlane closed the London debt-trading desk and moved the investment banking operation back to Australia, where it could be scrutinised more closely.

National Australia Bank said on Monday it had no direct exposure to Russia.

While Westpac has no exposure in its treasury operations, a BT Investment Services spokesperson said its internally managed investment options have a “minimal” exposure of less than 0.2 per cent of direct superannuation and investment assets.

“Given the evolving conflict between Russia and Ukraine, BT is working closely with its existing investment managers across its portfolios and to ensure the emerging impacts of financial sanctions are taken into consideration,” the spokesperson said.

Commonwealth Bank declined to comment.