Australia’s Future Fund loses private equity team - update

Byrom, David Simons, and Jasmina Osmanovic left the A$145.8 billion ($107 billion) sovereign wealth fund this week, according to sources familiar with the situation. Byrom has been with the group since 2007, while Simons and Osmanovic joined in 2008 and 2013, respectively. They are expected to move towards a formal launch of the consulting business, known as Potentum Partners, next month.

Future Fund said in a statement that there were eight members in its private equity team and the other five would remain in place. 

"We thank Steve, Dave and Jasmina for their important contributions and wish them all the very best. Our head of unlisted property, Stewart Tillyard, will take on responsibility for the private equity team and portfolio on an acting basis as we commence a recruitment process for a new ‘head of’. In the meantime, it is business as usual for the program which remains an important part of our diversified portfolio,” it added.

Potentum is already in talks with seed backers – chiefly the founders of global PE and VC firms – with a view to raising capital to cover initial operating costs. The plan is to target large institutional investors from around the world that want to build private equity programs like the one the team put together at Future Fund, with an emphasis on venture capital, growth equity, and co-investment.

As of June, Future Fund had A$20.6 billion invested in PE, or 14% of overall assets. Invested plus committed capital stood at A$27.5 billion across 31 GP relationships. Of the A$4.3 billion in capital called over the preceding 12 months, 36% was for VC and growth equity, 27% for co-investments, and 37% for buyouts. Meanwhile, VC and growth equity featured prominently in distributions, accounting for 42% of the A$2.6 billion received, compared to 6% for co-investment and 37% from buyouts.

Speaking at the AVCJ Australian & New Zealand Forum in March, CIO Raphael Arndt said that A$8 billion of the PE portfolio – which was then worth A$17 billion – was in venture capital and small business. There was up to A$3 billion in venture capital alone, most of it invested in or alongside US managers. Future Fund subsequently made its first VC commitment in Australia, backing Blackbird Ventures’ third fund.

In an interview with AVCJ in July, Arndt shed some light on the extent of group’s venture co-investment program, which at the time amounted to more than $1 billion across 40 deals. “While we do venture co-investment we have been careful to stay at the early stages of growth or we focus on unusual situations where we might already have exposure to the company so it’s not a fully open funding round,” he said.

Future Fund achieved a return of 8.7% per annum for the 10 years ended June 2018, exceeding the benchmark of 6.6%. The return on the private equity program alone is said to be 17.3%.

Outsourced chief investment office (OCIO) arrangements have become a common feature of the US institutional landscape over the last 10 years, with various spin-out teams from endowments offering to bring endowment-style exposure to groups that wouldn’t be able to manage it on their own. Potentum will likely take a similar approach, using separate account mandates to help LPs build venture and growth equity-focused portfolios or launch venture co-investment programs.

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