PE exposure vital in weak global economy - Future Fund

Speaking at the Australian Private Equity & Venture Capital Association's (AVCAL) Alpha conference, Ardnt painted a bleak picture of the global economy. He expressed concerns about tepid growth despite significant fiscal policy an expansionary monetary policy, as well as future headwinds in the form of demographics and unsustainable debt levels. Meanwhile, returns are being compressed by ever high asset values.

"Central bank policies are forcing investors to take more and more risk to find reasonable returns - pushing up asset prices and making it difficult to find value investing in traditional asset classes such as public equities and debt," Ardnt said, noting that "it is a particularly difficult time to be a long-term investor."

Future Fund started its private equity program eight years ago. It had A$12.8 billion ($9.7 billion) in the asset class as of June, or 10.4% of its overall portfolio, with more than half deployed in venture and small company growth strategies. Venture capital alone accounts for more than A$2 billion through fund-of-funds, direct fund investments and co-investments. This gave Future Fund early exposure to the likes of Uber, Didi Kuaidi, Pinterest, Airbnb, Atlassian and Snapchat.

Steps have been taken recently to increase exposure to China, particularly investments that offer access to healthcare, tourism, agriculture and internet-based retail - all of which are seen as proxies to the country's emerging middle class. As previously reported, Future Fund has also made its first foray into India in the past year, backing the latest fund raised by India Value Fund Advisors.

"Relative to many peer funds globally I would characterize our approach as seeking a small number of general partners - with whom we seek to develop deep and meaningful partnerships," Ardnt said. "Around 25% of the program is in co-investments and this is growing. Through the co-investment program we can really get to know our managers and gain access to their insights, which we can leverage across our business."

In the past year, Future Fund has utilized the secondaries market, offloading some of its more mature fund positions. This was done to reduce risk in the portfolio and dial back illiquidity, thereby increasing flexibility to respond to changing market conditions, Ardnt explained. Some of the capital was recycled into new allocations to private equity.

The private equity portfolio has delivered high teens returns since inception, net of fees and costs, outperforming public equities by more than 300 basis points per annum. The performance gap has increased to over 1,000 basis points in recent years. Future Fund's overall return since inception is 7.7% per annum, and then 10.7% and 4.5% on a five-year basis and a one-year basis respectively.

In addition to the private equity allocation, the fund has A$8.6 billion in property, A$8.2 billion in infrastructure and timberland, and A$16.8 billion in alternative assets such as hedge funds.

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• Topics
• Australasia
• LPs
• Performance
• Fundraising
• Australia
• Future Fund
• AVCAL