Radio Interview, ABC Melbourne Drive with Ali Moore

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The Hon Pat Conroy MP

Minister for Defence Industry

Minister for International Development and the Pacific

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(02) 6277 7840

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5 December 2023

SUBJECTS: Institutional investment into Defence, Defence Investment returns.

ALI MOORE: How often do you check your super account, and do you keep a very close eye and take a very keen interest in just where your money is being invested? You know that the Government's been talking about the trillions in super being put towards projects that are “in the national interest”, projects that might be in housing or energy. Well, Defence is now squarely in that mix as well. The Federal Treasurer has been meeting with the big super funds, looking for investments in key areas of the economy. And the Defence Industry Minister is Pat Conroy. Pat Conroy welcome to drive.

MINISTER FOR DEFENCE INDUSTRY: Thank you very much for having me, Ali.

ALI MOORE: The quote from you is that this is an opportunity for everyday Australians to invest in the defence of their nation. How would that work?

MINISTER FOR DEFENCE INDUSTRY: Well, the roundtable I had with Treasurer Jim Chalmers today was with key leaders in the finance sector, both superannuation and banks and managed funds. And it was all about how do we access the large pool of untapped private capital? Think mum and dad's savings, whether it's in shares or whether it's in super, to both give a great rate of return for them for their retirement, but also to help fund companies who are contributing to the defence of the nation. So, we've seen some of this already on a limited basis and this is part of our process of trying to grow the country, grow jobs, but also secure the nation at the same time.

ALI MOORE: Couldn't they just buy shares in the company largely, if that's what they choose to support?

MINISTER FOR DEFENCE INDUSTRY: They can, absolutely. But for most Australians well, not for most Australians, but for a lot of Australians, people choose not to buy shares directly. They're content to just use their superannuation accounts to have exposure to listed companies or even private companies, companies that aren't listed on the stock market. And the forum today is about what are the obstacles to those companies investing in Defence. They could be lack of information, lack of understanding about the opportunities. There could also be issues around ethical investing and making sure that the guidelines are met for all those sorts of challenges. But there are huge opportunities there. For example, we spent $31 billion last year on acquiring and maintaining platforms for the Australian Defence Force. Think the ships, planes, tanks for the Australian Defence Force. And there's huge opportunities for investment in that area to create jobs to help support the ADF, but also provide a rate of return to help support people's retirement.

ALI MOORE: Well, let's do the ethical investing first, because do you reckon that most workers would be happy to see their retirement money go into things like the arms industry, to go into the development of tanks or submarines or whatever it might be?

MINISTER FOR DEFENCE INDUSTRY: Well, I'd make two points. One, this is about equipment for the Australian Defence Force to help defend our country. And people already have their taxes that they pay going into that service. So, there's already an element of participation through the taxation system in there. But secondly, there's a spectrum of involvement. For example, one of the most successful private investments in the defence of this country was through a public private partnership to build and maintain our headquarters. So, that's buildings rather than weapon systems, and that's owned by Industry Funds Management, which is a big funds management arm for most of the industry superannuation companies. That provided a really great piece of equipment for the Australian Defence Force, our headquarters, our joint operation headquarters, but also provided really stable, steady rates of return over the long term for superannuation account holders. So, there's a spectrum of involvement there for some investment funds. They won't be comfortable, for example, investing in building ships, but they might be comfortable investing in building bases and headquarters for the Australian Defence Force that are obviously more defensive in nature.

ALI MOORE: So, as you said, you were looking today at the roundtable, at the barriers. What are the barriers? Because on the face of it, you'd look at this and you'd say, if it's such a great return well, when I say return, if it's a great investment opportunity and the primary responsibility of superannuation funds is a fiduciary one, they have to make returns for their members, why aren't they already investing in these areas?

MINISTER FOR DEFENCE INDUSTRY: Well, they are to some extent through publicly listed companies that are in the defence sector. But the main reason I think that they're not doing more is a lack of visibility of the pipeline of projects coming. Defence, by its nature, is a pretty secretive area. You've got to be careful about how much information you give out there on major projects, the scale of them or the timing of them, because that gives information to potential opponents. So, that lack of pipeline transparency is a barrier and that's different. For example, a superannuation fund can log on and see the infrastructure plans for a state government and they know, right, they're looking at building this train line. In ten years' time, we can start getting involved in that. So, Defence is a bit more secretive for good reasons. And so one of the areas we're looking at closely is how do we provide more classified and confidential briefings to people, trusted parties so that we can give that information out and they can make investment decisions without compromising national security.

ALI MOORE: You're listening to Pat Conroy, the Minister for Defence Industry, and we're talking about superannuation funds investing in the Defence space. Would you see it, Pat Conroy, as being a very specific thing, so that if the superannuation fund wished to invest in Defence industries, they would have a very particular fund that included that as an investment option, or would you see it potentially as being part of default funds if it's in national interest?

MINISTER FOR DEFENCE INDUSTRY: I think we'd be looking at specific funds initially. Ultimately, it's up to the market to decide that. But I think default funds would be at a more mature stage if ever. What I announced today with Treasury Jim Chalmers is we're running an expression of interest to see who would be interested in running a managed fund for looking at defence projects, so that's going out to the private sector and saying who's interested in putting together a managed fund that might have a few hundred million dollars in it to make investments in the defence sector, is the first step to see how it goes. But obviously we have to make sure that the rates of return are there, and we also have to make sure that we satisfy the ethical investment requirements that vary from fund to fund, bank to bank, superannuation fund to the next one. And we just got to make sure that we don't try and do an all-size-fits-all all approach.

ALI MOORE: And also, I assume it would be important that people would have opt-out. Not everyone will want to be in this space.

MINISTER FOR DEFENCE INDUSTRY: Oh, absolutely. And I think we're a long way from even getting to that stage. I think it's more having a discrete managed fund that banks and other superannuation accounts can buy into if that's where they want to go and see how that works. We're at early stages here, but there's some exciting projects that might fit the bill. Today was about starting the conversation, exploring the opportunities. Defence is one of the biggest expenditures of the Commonwealth budget. It's vital to our national security and it's an area where, if we get it right patient capital. Capital that's not interested in a quick buck, but interested in steady long-term returns over decades so that they can pay out pensions, is a logical source of further investment.

ALI MOORE: Just a final question what is a reasonable return?

MINISTER FOR DEFENCE INDUSTRY: It varies from project to project based on the risk. So, I need to be careful about going down that track. But basically, the rate of return should match the risk. So, a project that's steady, that's, for example, a facility like the Headquarters JOQ that hasn't got a lot of risk will have a relatively low rate of return, still a healthy rate of return. But things that are more high tech in nature, you can expect higher rates of return.

ALI MOORE: Pat Conroy thank you very much for talking to us.

MINISTER FOR DEFENCE INDUSTRY: Thanks Ali, have a great afternoon.

ALI MOORE: Pat Conroy there. He's the Minister of the Defence Industry.


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