Australia's Future Fund credits performance to private markets exposure

The private equity portfolio was worth A$23.4 billion ($16.7 billion) as of December, up from A$16.8 billion the previous year. The percentage allocation increased from 12.1% to 15.8%. Total assets rose from A$138.9 billion to A$147 billion. Exposure to public equities and hedge funds fell in relative and absolute terms. Percentage allocations to property, debt securities and infrastructure and timberland all increased.

“Over the past year the Future Fund’s diversified approach has continued to control risk levels whilst our management of the portfolio, particularly across private markets, has driven strong returns,” said David Neal, the sovereign wealth fund’s CEO, in a statement.

However, he also noted that risks tied to the economic cycle, geopolitics and asset prices are intensifying. Future Fund wants to achieve flexibility as well as diversification in its portfolio construction and so liquidity is being managed closely. Last year, it started work on selling off around A$5 billion in illiquid assets to prepare for a potential increase in volatility. No details were provided as to what kinds of illiquid assets have been put on the block.

Future Fund achieved a return of 5.8% in 2018, down from 8.8% in 2017, as public markets posted substantial losses in the second half of the year. On a five-year and a 10-year basis, it has delivered 8.8% and 9.7%, respectively.

The sovereign wealth fund noted that it has produced stronger returns with a more moderate level of risk than superannuation options. A top quartile growth plan matches Future Fund by percentage returns over 10 years, but its portfolio volatility is much greater (7% versus 3.7%). A top quartile balanced superannuation option was closer in terms of stability (4.2%) but trailed in performance (approximately 8%).

Future Fund differs from many superannuation funds in having less listed equities exposure and a higher allocation to private markets. It has been especially active in venture capital and growth investment, as well as co-investment. Of the A$4.3 billion in private equity capital called over the 12 months to June 2018, 36% was for VC and growth equity, 27% for co-investments, and 37% for buyouts.

Peter Costello, the sovereign wealth fund’s chairman, suggested to journalists that Future Fund could offer expertise to a government-owned default superannuation fund, which has been proposed by some policymakers. He added that Future Fund had no ambitions to enter the superannuation management space.

Towards the end of last year, three of the four most senior members of the private equity team at Future Fund – including PE head Steve Byrom – departed to set up their own consulting firm that will advise global institutional investors looking to build exposure to the asset class.

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