"We’re still doing the research – we only want managers we have a very high conviction in, and I think we might find it difficult to get lots of those in a small market like Australia…I know it’s of interest but it’s a part of a part of our portfolio, so frankly we haven’t gotten as far as thinking about small caps in Australian equities yet.” Once Australian equities mandates do start getting awarded, they will be complicated by a rule not well known until the appearance of the 2007/08 Annual Report – they will be prevented from buying Telstra shares on-market. We know this rule exists because during the year, one of Future Fund’s global equities managers liked Sol Trujilllo’s story enough to buy up nearly half a million of the telco’s share.

In what was no doubt a surprise to the (undisclosed) manager in question, the Federal Ministers responsible for the Future Fund had to be informed, and the shares promptly disposed of off-market. Paul Costello knows that a prohibition on the Australian sharemarket’s third-largest stock has the potential to impair the ability to add value for Australian equities managers. He revealed that the fund would consider providing a facility to its Australian equities managers, which will allow them to hold Telstra shares to the desired weight in their portfolio – as long as they buy them off-market from the Future Fund.

“Government can change its rules at any time but to the extent that this [prohibition on new Telstra shares] remains, managers who are attracted to Telstra will be able to hold it on their own accounts but it will be internally transferred to them by us.” The Fund might not be able to buy more Telstra shares but as this issue went to press, the November 20 milestone was reached after which it can certainly sell them. However David Neal has a message for any hedge fund eagerly awaiting the expiry of the escrow (coincidentally also the day after ASIC’s ban on short-selling of non-financial stocks was lifted). “There’s actually no reason for us to sell Telstra shares at any price…to date there’s been a nice little yield on them.

If a hedge fund wants to hang around waiting for four years for us to sell it, good luck to them.” Costello reiterates that there is no pressure on the Future Fund Guardians to dispose of the stake, and says that hedge funds – “whether they really are there or not” – will get “awfully bored waiting and watching”. The general manager admits to being a little tired of the “endless rumour” surrounding the Fund’s intentions re Telstra, although whether all this chatter has in fact been started by hedge funds is anybody’s guess.

The Future Fund’s ad visors