In Mary Shelley’s seminal novel Frankenstein, the ambitious scientist Dr Victor Frankenstein, in a quest to push the boundaries of human achievement, creates a living being from lifeless matter. Reflecting upon the moment of his success, Frankenstein recalls, ‘I had worked hard for nearly two years, for the sole purpose of infusing life into an inanimate body.’ However, rather than triumph, he experiences immediate revulsion: ‘Breathless horror and disgust filled my heart.’ What was intended as a gift to humanity became an uncontrollable force, his very own monster.

Australia too has given rise to a modern monster albeit not of flesh and bone, but of finance and bureaucracy. The Future Fund, once a tool designed with a narrow and practical aim, has morphed into an immense, unchecked economic entity that distorts public finance and policy. Astonishingly, there is little public discourse around the risks this growing fund presents. Worse still, there are now political proposals, such as the National party’s Regional Australia Future Fund, to replicate and further expand this financial creature.

The origins of the Future Fund trace back to 2006. The fund was created with a clearly articulated purpose: to assist the Commonwealth in meeting its unfunded public sector superannuation liabilities by the year 2020. This purpose is unambiguously stated in Section 3 of the Future Fund Act. To seed the fund, the government contributed $60.5 billion, funds sourced from the 2007 budget surplus and residual holdings from the privatisation of Telstra.

Fast forward to today, the fund has ballooned to a staggering $240 billion. Despite the initial expectation that it would begin distributing assets to meet its original purpose by 2020, the fund has not allocated a single dollar to cover the superannuation liabilities it was created to finance. Instead, the Commonwealth continues to shoulder these liabilities directly, with over $20 billion a year expensed annually. The fund, meanwhile, persists in a state of perpetual accumulation.

Milton Friedman’s famous aphorism, ‘Nothing is so permanent as a temporary government program’, rings ominously true. What was meant to be a finite intervention has instead evolved into an entrenched institution. The Future Fund now postures as a permanent fixture in Australia’s economic landscape, no longer tethered to its founding mission.

The core rationale supporting its continuation is flawed. Proponents argue the fund delivers superior investment returns compared to the government’s borrowing costs thus creating, in their eyes, ‘free money’. However, this argument is deeply misleading. It glosses over the inherent risks of large-scale investments and conveniently ignores the fact that taxpayers are forced participants in this gamble. If the logic of arbitraging returns versus debt costs were so flawless, then why not borrow $10 trillion and let the Future Fund handle the national economy.

Beyond flawed financial reasoning, the Future Fund’s very existence causes significant distortions in public policy. While political criticism of industry super funds is common, these same critics often fail to scrutinise the implications of a government-owned fund dominating investment markets.  The Albanese government’s recent changes to the Future Fund’s investment mandate illustrate the threat of political interference in what should be apolitical capital allocation.

Treasurer Jim Chalmers’ push to embed his vision of ‘values-based capitalism’ within the Future Fund’s mandate was a red flag. Initially, the mandate was to be modified to include the word ‘must’ in requiring the fund to consider government policy priorities when investing. This would have opened the door for the Future Fund not just to allocate capital in line with government policy agendas, but also to exert influence as a shareholder across a range of Australian and international companies. Though the final version watered this down to ‘may’, the politicisation of the fund’s investment approach is now undeniable.

Future Fund chair Greg Combet attempted to calm concerns by stating that the board would continue to assess each investment on risk and return metrics. Yet this raises an alarming governance question. In most professional funds, such assessments are delegated to an investment committee composed of financial experts. It would be absurd, for example, for the board of an industry super fund, say Cbus, comprised of CFMEU and Master Builders Association representatives, to evaluate every single investment decision. Why then is it acceptable in the case of the Future Fund?

Even putting governance issues aside, the fund’s investment performance has been underwhelming. Its ten-year average annual return sits at 8.1 per cent. By contrast, the ASX/S&P 200 index returned 9.3 per cent over the same period. And more meaningfully, Australia’s five largest pension funds also outperformed the Future Fund: AustralianSuper (9 per cent), Australian Retirement Trust (9.5 per cent), Rest (8.6 per cent), HostPlus (9.3 per cent), and Hesta (9.3 per cent).

Notably, these funds also pay tax, something the Future Fund does not. Adjusting for this by a conservative 10 per cent tax discount, the Future Fund’s effective return drops to approximately 7.3 per cent. That represents nearly a two-percentage-point underperformance compared to the industry average.

One contributor to this underperformance is the Future Fund’s bloated bureaucracy. The Future Fund Management Agency does not manage investments directly but outsources this task to external asset managers. Yet it employs over 305 staff, each costing taxpayers an average of $300,000 annually, for what is essentially a contract management task.

Over the past two years alone, the workforce has grown by one-third. Among its employees are four earning more than $1 million each, and a ‘Chief People, Culture and Inclusion Officer’ with a salary topping $770,000. There’s even a four-person travel team and, astonishingly, a government relations officer; a government lobbyist within a government agency.

The cost structure reflects this inefficiency. Last year, the Future Fund’s expense-to-income ratio was a hefty 2.7 per cent, including $89 million in payroll and $274 million in external investment management fees.

Given these realities, it is time to confront the uncomfortable truth. The Future Fund has outlived its usefulness and risks doing more harm than good. The most responsible course of action would be an orderly liquidation of the fund, with proceeds used to reduce the Commonwealth’s debt and, in doing so, ease interest costs for future generations.

The larger and older this financial creation becomes, the more it warps Australia’s economic governance. Just as Frankenstein’s monster warned: ‘Beware; for I am fearless, and therefore powerful.’ But that power must now be reined in. Before the monster grows beyond all control.