David Murray, the Future Fund chairman, believes US university endowments are the “standout” investment funds in the world. He said, in his first interview on how the Fund would operate, that endowments provided “the best example of what we have to try to achieve”.
US endowments, such as those of Yale and Harvard, have led the institutional world in the use of sophisticated strategies including high allocations to alternatives and the use of benchmark-unaware strategies, private equity and alpha/beta separation strategies. Murray’s interview was with Michael Pascoe for Alan Kohler’s Eureka Report online newsletter last Friday. Pascoe asked, philosophically, what sort of operations Murray admired. He responded: “I think the standouts are the university endowments in the US. They have to think about things in the same way the Future Fund will have to. They’re dealing with an underlying cause, which is the stable funding of a university for the very long haul to maintain a level of education, and at the same time they’re dealing with peaks and troughs in the economy around that university. “Typically, those universities have been through bad times; when they risk losing their great professors, it breaks down the whole fabric of their learning: the special effect that they provide their students. So, they have to take some money in and earn good money for a lot of years and then be prepared to let some go in bad years but smooth that all out and take a very long-term view. “The other one that’s interesting is the Norwegian Fund, because it’s built up a huge sum of money to invest the surpluses from the North Sea oil reserves while they’re there for the Norwegian economy, with the thought that one day there won’t be. “So, there are some fantastic examples around the world but the university endowments in America, I think, are probably the best example of what we’ve got to try and achieve.” Asked whether that meant the Future Fund would also have a lot of direct investments in asset classes such as infrastructure, Murray said: “Well it’s a major asset class indirectly in the economy, so it’s just as important an asset class for the fund as all others. “But direct investment is part of this notion, that (the Future Fund) is not an entrepreneurial participant in the financial system, so I think that’s a good thing to be precluded from direct investment. “But our financial engineers in the market can create pooled funds, all sorts of financial instruments for investment, so I don’t think there’s any limitation because of the fantastic creativity and skill in the financial system.” Under the Future Fund Bill, the Fund can only invest in financial assets, cannot make speculative plays in derivatives and cannot borrow, however, it is clear that the chairman, at least, will be keen to access the latest investment strategies through other means. The Bill is yet to pass the Senate and gain Royal Assent, and the Government has yet to announce the rest of the board or any full-time staff. The board is being chosen by the Treasurer and Minister for Finance, however, the chairman and board will choose the chief investment officer, which Murray said was a crucial role. Asked whether the Fund would have an experienced CIO, Murray said: “That’s right – somebody who really understands being around the market, empathises with this sort of role, with the idea of a Future Fund; there’s a few of them around the world. That will be a very important appointment and one that we can’t get involved in actively until there’s a board in place.” Murray said the Fund would have a small executive staff. He noted that the NZ Super Fund, with $NZ8 billion under management currently had a staff of 13 and that the Future Fund may get to “25 or so”.
The total portfolio approach has already been implemented by some of the biggest asset owners around the world. But with the advent of a more volatile market and macro backdrop more funds might start putting it to work.
Lachlan MaddockApril 18, 2025
