CIO Raphael Arndt

Future Fund investment chief Raphael Arndt said the fund has been steadily building up liquidity in order to snap up bargains from forced sellers of property and infrastructure assets.

Speaking at a briefing after the $162 billion sovereign wealth fund posted a negative return for the March quarter, Arndt said the fund had deliberately reduced its illiquid positions for “no other reason” than to seize opportunities when rivals were forced to sell-down stakes in unlisted assets to meet demands for early withdrawals from members.

“Over recent years we have focused on increasing portfolio flexibility and liquidity and this has included selling or reducing more than 30 individual illiquid positions,” he said.

While the fund has taken advantage of “several opportunities” created by the market disruption in recent weeks, the CIO remains cautious. “The risks going forward remain elevated so we certainly wouldn’t be diving back in with our ears pinned back at the moment, even though we have a lot of liquidity to buy as opportunities arise.”

He went on to say that private markets will settle into a new equilibrium as the economic outlook becomes clearer. And we’re still in the lockdown phase of this event. And so we’re really only going to discover over the coming months whether the earnings destruction that we’re going to see… is going to be offset by the government’s stimulus around the world or not.”

The fund has recorded a negative return of 3.4 per cent for the March quarter after financial markets plunged as a result of the coronavirus pandemic, according to a portfolio update released on Monday.

Despite volatile conditions, this result takes the sovereign wealth fund’s performance for the financial year-to-date to negative 0.2 per cent.

Unlike many of Australia’s super funds which revalue unlisted assets quarterly – but are under pressure to provide out-of-cycle valuations – the Future Fund only revalues assets at the close of the fiscal year in June.

“We’ve got no need to do that {revalue quarterly} since people are not trading in and out of our fund,” Arndt said.

Had the unlisted asset valuations had been marked down by 7.5 per cent for the March quarter – in line with industry super fund write-downs – the financial year-to-date return would have been negative 3.5 per cent.

During the briefing, Arndt conceded that if the fund revalued the one-third of unlisted assets that were not marked-to-market in March, the return for the quarter would be negative 6.6 per cent.

The CIO declined to provide a breakdown of returns for different asset classes in the portfolio but commented that equities and credit performed poorly in line with the markets and it was the fund’s defensive overlay positions – currency rates, options – that added a lot of value in the quarter.

Analysis of the portfolio update showed the combined exposure to unlisted private assets such as property, infrastructure and private equity asset classes is about 32.4 per cent.

Notably, the allocation to private equity is 18.2 per cent, up from 14.9 per cent in the immediately preceding quarter.

The portfolio update also revealed that the fund holds 9.7 per cent of assets in debt securities.

Exposure to alternative assets stood at 14.7 per cent while cash fell sharply to 9.6 per cent, down from 13.7 per cent in the previous quarter.

The update shows a slight drop in the fund’s exposure to listed equities. Allocation to listed equities has dropped from 36 per cent of assets, to 33.9 per cent.

Assets fell by $5.7 billion to $162 billion over three months.


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