Raphael Arndt’s pandemic perspective is a unique one, bookended as it was by the twin roles of nurturing the $163 billion Future Fund through a market crisis as CIO during the first half of the year and ultimately guiding a team from the CEO’s seat at the back end of 2020.
When David Neale announced his resignation after six years as CEO at the sovereign fund in early February to head up the $163 billion IFM Investors, Arndt was given scant time to think about the prospect of applying for the job before the pandemic took effect.
“We had an acting CEO in Cameron Price who did an outstanding job during that period,” Arndt told Conexus Financial CEO Colin Tate during the Fiduciary Investors Symposium in late November. “I was thinking about the CEO role as it was vacant but at that stage I hadn’t made a decision whether I wanted to apply or not.”
It became apparent very quickly that as CIO he had other pressing matters.
“In March it didn’t matter anymore,” he recalled. “We just had to focus on the portfolio and making the adjustments that we had to, making sure we understood what was going on in the world, what our liquidity position was and so on.”
All thoughts of the top job were parked. “To be frank I just put it out of my mind,” he said.
What followed was an intense three months. The team put all its other projects on hold, including several major technology uplifts, to focus on the fund assets.
“Cameron did a great job of holding everything together and making sure the organisation as a whole was supporting the investment team, which included myself, so it could focus on what it had to do.”
On top of its own $163 assets under management, the Future Fund is also responsible for the investment stewardship of other government funds including the Medical Research Future Fund ($20.6 billion), the DisabilityCare Australia Fund ($16.1 million) and the Future Drought Fund ($4.1 billion). It’s total assets under management is $209.8 billion.
While the fund invests over $4 billion in venture capital (winning on software provider Atlassian, losing on streaming service Quibi), it has taken a relatively conservative stance during the pandemic. Arndt has been vocal in the media about the current uncertainty of global markets; the fund recently shifted $11.8 billion to cash, bringing its total level to 17 per cent of the portfolio.
The perfect circuit-breaker
By the time the worst of the market crisis was over, around May, Arndt was named chief executive officer of the Future Fund after five years as CIO. The fund had held up reasonably well, returning negative 3.4 per cent for the March quarter.
The job swap provided the new CEO with an appropriate circuit-breaker to assess the fund’s strengths and weaknesses.
“I had a bit more clarity then about the things that worked and the things that had to be improved,” he said.
“I could continue to support the investment mission going forward and very much as CEO now that’s what I’m focussed on – taking an organisation that has changed very much over the last 14 years, is facing challenges like working from home and significant changes in financial markets and making sure we’re positioned as well as we can to support that going forward.”
In September the fund revealed a -0.9 per cent return for the financial year. It has reported an 8.9 per cent 10-year annualised return, however, well above its stated target benchmark of four to five per cent over CPI.
Just the beginning
Looking back, Arndt believes that a lot of the pandemic’s major pressure points for institutional funds management have been eased; liquidity pressure, market pressure and rapid changes in asset prices have all abated to a degree.
“Huge stimulus from central banks and government helped that,” he says.
As long-term investors, however, Arndt believes what’s in the rear-view mirror is only the first tranche of change. And not all of those changes stem from the pandemic.
“I mean, the sort of fundamental changes that emerge in a society that is at the end of a very long cycle are just starting to emerge,” he said. “Things like zero or negative rates, unconventional monetary policy… rising populist politics leading to changes in regulation and how society works, demands from the emerging generations and gen’ Z to get a better deal. All these things are fuelling fundamental changes in markets and how assets are priced and what our fundamental returns are going to be.”
As CEO, Arndt takes a broad view of the world and how it affects the fund. “These changes in many ways are much more fundamental than the market ructions in March and April,” he says.