The quest for simplicity is one reason why the Future Fund has not followed institutional investors of comparable size, such as Queensland Investment Corporation or Victorian Funds Management Corporation, into an explicit separation of alpha-seeking and beta-generating investment teams. Asked whether he’d considered structuring his investment team that way, Neal accepts that alpha and beta characteristics are “one of multiple inputs” into any investment decision, but believes “the onus of proof is still on the separators…we really like the idea of keeping it straightforward, relatively small, unfussy. It might sound a bit prehistoric and unexciting, and it doesn’t mean we’re not sophisticated – there’s an awful lot of sophisticated analysis and investing that goes on – but we wanted to keep our structure understandable, and the environment we’re in at the moment gives us some support for that.

Complexity breeds problems and distractions for organisations.” Costello accepts that “complexity tends to find its way into every organisation”, but the Future Fund is yet to create too many hard-and-fast investment rules for itself – for instance, indexation and fundamental indexation have been a major feature of the equities portfolio in its early months, but Neal refuses to name any sector where he suspects beta-tracking will be there to stay. “It’s not really an explicit ‘oh is there alpha here or not?’ decision, it’s ‘is this package of risk interesting to us?’ The reason we started off with lots of indexation is simply that we didn’t have a team. We didn’t have a way of analysing complex packages of risk.

Fundamental indexation is in there for a chunk of the international equities because implementation is easy, there’s a small licence fee in there but essentially it’s cheap and governance-light, and it adds diversification within the portfolio.” The Future Fund has made progress towards a more active configuration for international equities, with Peter Sartori’s regionally-focussed Treasury Asia Asset Management among the beneficiaries.

However Australian equities managers – probably the majority of buy-side players reading this – will have to wait a bit longer to discover if their overtures have been in vain. A passive mandate with Vanguard remains the only foray for now. Even at 30 per cent of the Future Fund’s ‘equities’ allocation – or 10 per cent of the entire portfolio – the minutiae of how the target ex-Telstra Australian equities portfolio will be implemented is not a major priority for Neal at this stage. He does not yet have a firm idea of how many active Australian equities managers will be employed, or whether the size of the program will allow a series of sector-focussed specialists to be used. “Until we find a good active idea, we will be passive. Remember for us there is no rush.