Australia's Future Fund emphasizes VC, growth equity

Noting that venture capital and growth equity accounted for around 46% of Future Fund's A$12.8 billion ($9.75 billion) private equity program as of June, PE head Steve Byrom said that these strategies offer access to an innovation cycle largely uncorrelated to the challenging global economic and market environment. "We believe we are in the midst of a multi-wave innovation cycle driven by empowering the consumer, cloud computing, big data, machine learning and mobile connectivity," he added.

The new disruptive business models backed by venture and growth equity managers also offer insights that contribute to investment decisions in other areas such as listed equities, property, infrastructure and debt. To this end, Future Fund partners with a small number of VC managers, committing capital to their funds and increasingly co-investing alongside them.

Byrom's remarks echo a speech given by Raphael Arndt, Future Fund's CIO, at the Australian Private Equity & Venture Capital Association's (AVCAL) Alpha conference earlier this year in which he emphasized the importance of exposure to PE and VC - where it is driven by true value creation rather than financial leverage or strong economic growth.

Arndt also revealed that venture capital alone accounts for more than A$2 billion of the group's private equity program, 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.

As of June, Future Fund had A$20.5 billion with 29 private equity managers, comprising A$12.8 billion of invested capital plus A$7.7 billion in unfunded commitments. Over the course of the previous 12 months, it saw A$2.6 billion in capital calls, A$4 billion in distributions and A$1.6 billion in unrealized asset value appreciation.

Future Fund also realized A$1.7 billion by selling down some of its more mature fund positions to reduce risk and dial back illiquidity. It was reported earlier this year that A$1 billion worth of assets were sold to Canada Pension Plan Investment Board (CPPIB). The annual report does not enter into specifics on that, but notes that A$233 million in assets were sold to the Medical Research Future Fund.

In addition to 46% exposure to venture and growth, Future Fund had 21% in buyouts, 18% in co-investments, 7% in distress, and 8% in secondaries. Two thirds of this exposure was in the US, 13% in Europe ex-UK, 5% in the UK, 4% in other developed markets, 7% in emerging markets and 3% in Australia.

Future Fund's total assets stood at A$122.8 billion, of which 10.4% was in private equity. The sovereign fund also had 7% in property, 6.7% in infrastructure and timberland and 13.7% in alternative assets such as hedge funds. The fund's return for 2015-2016 came to 4.8%, below the 5.5% target return based on inflation plus 4.5%. The return over five years is 11.4% per annum and 7.7% since inception.

Upon its founding in 2006 Future Fund received contributions from the Australian government of A$61 billion. It is targeted to reach A$140 billion in size by 2020 to help the government meet the cost of public sector superannuation liabilities.

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• Topics
• Australasia
• LPs
• Fundraising
• Performance
• Venture
• Growth
• Australia
• Future Fund