Australian Future Fund piles into debt

The $A51.2 billion ($37.9 billion) Australian Future Fund has quintupled its allocation to debt in the past year, significantly upweighting its exposure to debt securities in the last quarter to 21.9 per cent of the fund.

The fund, which returned -1.32 per cent for the March quarter, had an allocation to debt as low as 4 per cent last April.

In the past quarter, the fund has also constructed a mandate with a Baltimore-based investor in venture capital funds and direct projects, and invested in active domestic equities for the first time.

The Fund’s portfolio update for March 31, 2009 revealed that debt securities exposure jumped to 21.9 per cent from 17.3 per cent in the previous quarter, for the ex-Telstra section of the portfolio.

New mandates with Goldman Sachs Asset Management and mid-market credit specialist Oak Hill Advisors were awarded in the debt securities sector.

JF Capital Partners and Perennial Growth Management were beneficiaries of the Fund’s move into active Australian equities management, with the two firms sharing in the $4.75 billion now allocated to the sector (9.3 per cent of the ex-Telstra component, up from 8.6 per cent last quarter).

The lone new private equity mandate was with Montagu Newhall, from Owings Mills on the outskirts of Baltimore, which is an investor in venture capital funds as well as direct VC projects. The Future Fund has not invested in any of its four ‘Global Partners’ funds but rather had a specific mandate constructed for it. Ashton Newhall, a principal of the firm, comes from a family tradition of venture capitalism – his grandfather ran private equity portfolios for the Rockefeller family, where projects included the development of a jet engine.

Two new property mandates were also awarded, to ING Clarion Real Estate Securities and Quadrant Real Estate Advisors.