Future Fund chief departs, alternative weightings increase

Four years after becoming its first employee, Paul Costello will leave his role as general manager of Australia’s Future Fund, saying “new leadership” was appropriate now that the A$87 billion ($81.2 billion) vehicle was beyond its “startup phase.”

In that time the fund, which began investing in June 2007, has moved to a highly diversified position that includes 15.6 per cent in alternatives – where skilled managers are used to take advantage of capital scarcity and market inefficiency through a diverse range of strategies – 4.5 per cent in infrastructure, and 3 per cent in private equity.

In the year to June 30, 2010 the fund has deployed more than 28 per cent of its cash, with alternatives and global equities the main beneficiaries. The alternatives allocation, for instance, has increased from 5 to 15.6 per cent in the past year.

Costello said he will remain in his role for another couple of months, to “facilitate a smooth transition” to a new leader of the Future Fund Management Agency, Melbourne.

The fund’s board of guardians said it already was searching for a replacement, and would look locally and offshore.

Board chairman David Murray paid tribute to Costello, particularly for his role in “recruiting a skilled team to develop and implement the investment program.”

From holding an initial $18 billion in a cash account, the fund under chief investment officer, David Neal, now has more than 60 partnerships with global investment managers.

David Murray, chair of the fund’s board of guardians, said cash was deployed into strategies “consistent with our long-term objective”.

Murray said the design of the portfolio meant the fund was less reliant on equity markets to generate returns, than other investors.

During the year the fund moved its debt program, which remains a significant part of the portfolio at 21.9 per cent, away from holdings built opportunistically during the early stages of the credit crisis, to longer-term and higher yielding securities.