The investment team of the Future Fund, Australia’s A$252.3 billion ($166.53 billion) sovereign wealth fund, is weighing opportunities for it to expand the active equity program it re-launched in 2023, according to chief investment officer Ben Samild.
“We’re constantly analysing where the best place for our equity portfolio is and how it is best expressed,” Samild said on a media call for the Future Fund’s results, which saw it return 12.2 per cent in the year to June 30, adding A$27.4 billion ($18.09 billion) of assets under management through investment returns.
“There are real opportunities elsewhere in other markets where we can observe real inefficiencies; that’s a long-term framework and a long-term program. We’ve done more in emerging markets this year and would expect other parts of the world to be included over the next couple of years.”
The Future Fund shuttered its active equity program in 2017 after deciding that central bank policy had warped fund manager returns to the extent that it would get more value from investing in listed equities through passive strategies.
Since it reactivated the program, the Future Fund has invested in a secretive Japanese activist hedge fund Effissimo Capital Management, which has stayed away from the media spotlight despite playing a decisive role in several of the biggest governance stories in Japanese corporate history, including by successfully calling for a probe into allegations that Toshiba had pressured investors into voting for resolutions recommended by its management.
That followed another investment in Japan’s equity market through Wellington Investment Management. It has also invested in active Australian small caps through Maple-Brown Abbott.
While the Future Fund has not yet updated its manager list to include any new active emerging market equity managers, it has repeatedly flagged that it would look to diversify away from the US amidst growing political uncertainty. In a speech in June, Future Fund chair Greg Combet said that the US was becoming a “more risky and uncertain investment destination” and that more time and resources needed to be devoted to investigating other markets including Japan and the EU. On Tuesday’s call, Samild said that the Future Fund had been moving to invest in opportunities across asset classes in both those jurisdictions.
“We have been investing actively across the capital stack in both [Japan and Europe]. We’ve been super interested in European credit opportunities and have been doing a lot of work in that space, and in Japan across the board: property, public equity, private equity – we’ve been very active.”
But while Samild noted that the US market has been highly concentrated in a handful of technology stocks, he also said that allocations to it have been “so well-rewarded” and are “very difficult to step away from”.
“Thematically it’s obviously super interesting, because to step away from that concentration you’re stepping away from a particular technology scenario… which is quite hard and we’re not sure that we have a differentiated view to the market on the winners and losers and outcomes of that,” Samild said.
“We try to be very thoughtful about that without being hubristic. So whilst we have taken opportunities all over the capital stack, private and public, in order to diversify across multiple potential future worlds, the actual index concentration isn’t one we’ve tried to mess around with, as it were, because we feel like, particularly in the US, you’re having to take a view that we’re not comfortable taking yet.”
As at June 30 2024, the Future Fund had 43 per cent of its listed equities in the United States. Australian equities accounted for 27 per cent of its listed equities exposure, emerging markets the next highest exposure at 12 per cent.
Samild said that some of the Future Fund’s more active portfolio decisions over the last year “played out very pleasingly”. One of those was a move to increase its allocation to risk assets in the months prior to Liberation Day, spending a bit of the significant cash pile it had built up.
“That came as a result of pretty deep thinking about what we thought the various political and policy cycles would likely mean for risk assets and equity markets in particular,” Samild said.
“It’s definitely paid off; it’s been a really strong year for markets and it was very, very accretive to returns. We also thought there would be more significant volatility… and we did quite a bit of work in making sure that our portfolio was well-prepared from a liquidity and protection and diversification perspective.
“Liberation Day was a good example of that, and the fund and the investment team were very well prepared for those events and were able to really lean in to risk as markets bottomed and that was quite a profitable outcome.”
The Future Fund recently received permission from the Australian government to begin making direct investments in Australian property and infrastructure without using an external manager, which it has been required to do since its inception in 2006.
But while Samild said that the Future Fund hadn’t yet made any direct investments itself, the sovereign wealth fund has been investing in the areas of “national priority” that it must consider under the controversial changes to its mandate made by Treasurer Jim Chalmers, including by increasing its stake in data centre operator CDC.
“We’ve been strong investors (in private markets) since the inception of the fund, and we were able to find some really significant domestic infrastructure opportunities this year,” Samild said.
“Candidly, it looks to us like there is an awful lot of capital needed throughout the developed world, especially in the infrastructure space, but that then floats down through credit and equities and private equity. The cost of that capital seems to be going up, which is a good situation for us, so we’re extremely alert to and interested in all manner of opportunities both domestically and across the world, but in particular Europe and Japan.”
