Sovereign wealth fund gets shot of munitions companies

Australia's sovereign wealth fund dumped holdings in mine and cluster-bomb makers as the nation prepares to ratify a treaty banning the weapons.

The Future Fund, which has A$74.6 billion ($101.35 billion) in assets, this year sold out of 10 companies involved in making munitions, including two of its three biggest defence holdings in Lockheed Martin and General Dynamics Corp, Will Hetherton, a fund spokesman, said in emailed comments.

The fund, established in 2006 to cover the pension costs of retiring lawmakers, judges and public servants, had A$239 million invested in defence and aerospace as of December 31, according to portfolio holdings obtained by Bloomberg News through an Australian Freedom of Information Act request.

"Having initially excluded a number of companies on the basis of very clear evidence, during 2010 we undertook a rigorous process to identify and assess companies where evidence was less strong," Hetherton said. "As a result we have now excluded a total of 10 companies and unwound any investments we held."

While Australia joined more than 90 other countries in signing the Convention on Cluster Munitions in 2008, the nation has yet to ratify the treaty with legislation at present before Parliament.

The accord prohibits the use, development, production, stockpiling and transfer of cluster weapons able to release dozens of "bomblets" over a wide area and which have been blamed for civilian casualties.

Other stocks to be sold include Alliant Techsystems, L-3 Communications Holdings, Raytheon and Singapore Technologies Engineering. The defence investments sold by the Future Fund had a market value of A$74 million as of December 31, according to the documents, which don't say when the fund bought the shares.

"We don't direct the investment decisions of the Future Fund," Treasurer Wayne Swan said in Canberra yesterday.

"Cluster bombs, my personal view of those is that they are very destructive weapons which can cause enormous amounts of human misery."

Lockheed Martin rose 25 per cent since the start of 2006 to the end of last week. General Dynamics is up 28 per cent.

The MSCI World Index gained 10 per cent in the same period.

The fund's biggest defence holding is in Honeywell International, with a value of A$28.2 million.

Under legislation to ratify the treaty, it would be illegal for an individual or bank to finance or help a company that develops or produces cluster munitions.

"The board's position is that it will not invest in economic activities that are illegal in Australia or contravene conventions," Hetherton said. "We will continue to monitor the portfolio and the activities of relevant companies to assess whether further exclusions become necessary or whether current exclusions can be removed."

Cluster bombs have been used by at least 15 countries, including the US, Russia, the UK, France and Israel, says the Cluster Munition Coalition, an umbrella group for 300 civil-society organisations.

"This is important given that Australia is a signatory to the international convention banning these horrendous weapons," Michelle Fahy, Canberra-based spokeswoman at the coalition, said in emailed comments.

"Australia has one of the largest investment markets - we would really make a difference if our finance sector ceased financing and investing in the manufacture of these weapons."

The accord is the first international treaty to ban an entire category of conventional arms.

The fund has faced calls from the Australian Greens, who helped Prime Minister Julia Gillard win power last year, for its investment rules to be revised since disclosing in March A$147.7 million of tobacco investments.

The balance of its holdings are in private equity, property, infrastructure, debt and cash.

- BLOOMBERG