Labor has attacked the $166 billion Future Fund for being too timid in investing in Australian venture capital and promised to push the sovereign wealth fund to increase its VC holdings as a way of boosting the wider economy.
Shadow minister for the digital economy Ed Husic said he has “been absolutely staggered that our nation’s pre-eminent fund, the Future Fund, refused to back local venture capital”.
“It’s not like they don’t like venture capital; it’s just they didn’t like Australian venture capital,” Mr Husic told Parliament on last month.
“We’re not advocating a mandate and forcing them to do that. We certainly recognise you have to be very prudent about applying funds in this space, because it is a high-risk class,” he said.
“If they get similar return rates here to what they’re getting overseas, it is absolutely incumbent on our nation’s Future Fund to back local venture capital. This is me as a Labor MP arguing this, but a lot of our crew know that you need to back new firms with new ideas to put new drive into an economy that hasn’t behaved the same since the global financial crisis (GFC).
“We do need to be clear that Labor will push for this because we see a longer term economic benefit.”
Mr Husic was speaking after the chief executive of the Future Fund, David Neal, had outlined a cautious approach to investing in Aussie VC to a Senate estimates hearing, while also saying the level had increased.
Dr Neal had told Mr Husic’s colleague, Senator Jenny McAllister, that the Future Fund had made only one investment of between $20 million and $30 million in local VC – in Sydney-based Blackbird Ventures. He said the Fund would like to do more but had to invest in world class VC managers in order to get the best return from the $166 billion of taxpayers’ money it manages.
Dr Neal told The Australian Financial Review in an email on Friday that local VC “is showing some promising signs and that’s why we have invested”.
“We’re committed to helping to build the local VC industry, to strengthen its ability to help high potential Australian businesses grow. As part of this commitment we’ve brought some of the world’s top venture capital investors to Australia so they can meet the local community, identify prospects and share their global expertise with local VC players.”
The Blackbird investment is only 1-2 per cent of the Future fund’s $2 billion of VC investments. Mr Husic said this was selling the local VC community short and that Dr Neal and the Future Fund’s chief investment officer Raphael Arndt had been at odds with one another last year.
Dr Neal had told the Senate in October that Aussie VC returns hadn’t been good enough, but a month earlier Dr Arndt had urged Aussie superannuation funds to invest more in VC.
Super funds do more
“Why is it that taxpayers’ dollars can be used to support the growth and evolution of new firms and new jobs offshore, yet we see none of that happening here?” Mr Husic said. He said super funds such as Hostplus, Australian Super and First State Super had invested more than the Future Fund in homegrown VC.
He said he understood the Future Fund had to outsource the job of combing the local market for world class VC opportunities, but worried that the US firm chosen – Greenspring Associates – was too far from the local scene.
“If we see Greenspring turn up only once a year to scope out local VC and we see only one or two announcements made just to stop the hounding of the Future Fund, that not only is wrong in the short term but is denying us longer term economic prosperity. We will be fixed on this issue longer term.”
VC raised in Australia has jumped from just $326 million in 2015 to about $1.25 billion in 2017, according to Innovation and Science Australia’s Australia 2030: Prosperity through Innovation report. The annual rate was about $350 million before the GFC, and between $120 million and $175 million from 2009 to 2014.