The $64 billion Future Fund released its 2007/08 annual report yesterday, revealing the names of seven new managers it has appointed over the past year.
The Fund has changed its strategy to reflect the opportunities presented by the credit crisis, and said a key feature of its approach was to consider investments in broad categories with common characteristics, rather than as distinct asset classes. The Fund said in its report that it believes this “minimises the risk of a potentially attractive investment opportunity being overlooked because it does not meet the, often narrow,definition of an approved asset class”.
From the fourth quarter of 2007 it slowed the building of its listed equity position, only recommencing substantial allocations in the final few months of the financial year. As of June 30, the Fund’s equity exposure sat at 28.9 per cent. This included new managers Schroder, and the Asia-Pacific equities boutique Treasury Asia Asset Management, which were both appointed to ‘global equities’ mandates.
Over the past year the Fund also moved to increase its alternatives exposure. The report said the Fund “observed that sectors such as private equity, property and infrastructure had become heavily reliant on easy access to credit”, and “judged that these sectors would find it more difficult to attract capital in the future”. Seeing this as a potentially attractive opportunity led the Fund to prioritise the building of appropriate internal skills to enter these markets, the report said. The Fund appointed MGPA, a private equity real estate investment advisory company based in Bermuda and part owned by Macquarie Group to manage two distinct mandates, one in European and one in Asian real estate. It also appointed Sankaty Advisors, a US private manager of fixed income and credit instruments. Sankaty specialise in leveraged loans, high-yield bonds, distressed/stressed debt, mezzanine debt, structured products and equities.
However, at 0.1 per cent, the Fund’s exposure to this sector was still way below its target weight of 30 per cent. The difficulty in transitioning to alternatives was blamed on the time required to attract the appropriate people, and “sticky” prices that have taken a long time to reflect changed fundamentals.
The Fund also said that since the last fiscal year it had been able to take advantage of distressed debt opportunities, where “capital was scare and liquidity could command a premium”. The Fund invested in both short-term, high-quality bank bills, and more opportunistic debt investments, hiring Macquarie Investment Management and PIMCO.
A mandate was also awarded to BlackRock Investment Management to run overlay strategies, which it is understood has the charge of keeping the equity proportion of the portfolio within its ranges. Neither the Fund nor BlackRock were able to comment in detail on how this was being implemented.
The Future Fund is still a long way from unwinding its 62.1 per cent cash position to its target allocation of zero. The Fund aims to eventually hold 35 per cent in equities, 30 per cent in tangible assets, 20 percent in debt, and 15 per cent in alternatives. It said its large cash holdings reflected its “still cautious view of markets”, the early stage of its private markets program, and the receipt of a further $10.9 billion in Government contributions during the year.