Future Fund offloaded A$6bn of PE in liquidity grab

The Australian SWF's exposure to the asset class had grown in recent months due to its relative outperformance and currency moves, according to acting CIO Sue Brake.

Australia’s Future Fund sold off a major chunk of its private equity portfolio in the second quarter as the pandemic bolstered a need for liquidity.

The A$161 billion ($118 billion; €99 billion) sovereign wealth fund’s private equity portfolio fell by A$5.1 billion to A$24.4 billion between 31 March and 30 June, according to an interim statement published on Wednesday. Its exposure to the asset class dropped by 3 percentage points to 15.2 percent.

Future Fund’s cash position rose to 17 percent from 9.6 percent over the period to ensure it had the flexibility to respond to emerging opportunities and risk, the results said.

In total, the Melbourne-headquartered institution sold around A$6 billion of private equity assets through the private secondaries market, acting chief investment officer Sue Brake said on a media call. This included a significant number of direct secondaries transactions.

“It was the largest fund-of-funds secondaries sale that there has been and it’s an important test of our ability to access that liquidity that we’re very happy with,” Brake added.

“I also want to make a point that this downsizing is not a reflection of PE in the portfolio; it’s still a very important part of the portfolio. One of the reasons it had gotten a little large is outperformance; another reason has been currency movements.”

Future Fund is understood to have appointed investment bank Greenhill in the second half of last year, a little while after the arrival of Alicia Gregory as head of private equity. Gregory, who is based in the fund’s Sydney office, joined in the first half of last year from National Australia Bank’s investment arm, MLC, where she oversaw 40 co-investments and a A$5 billion funds portfolio, per her LinkedIn profile.

According to the latest results, Future Fund’s private equity sale reduced its exposure to international growth and buyout managers.

Buyouts accounted for 31 percent of the fund’s private equity portfolio as of 30 June 2019, while venture and growth equity represented 61 percent, according to its 2018-19 annual report. The fund had relationships with the likes of Bain Capital, Hellman & Friedman and Advent International, as well as China’s FountainVest Partners, Hillhouse Capital and CDH Investments at 31 March 2020, per its website.

“In terms of the rebalancing within the portfolio, it was really a strategic thinking about the overall balance of both buyout and VC,” Brake said. “What’s interesting is, over the one year, the private equity performance was actually positive. And that’s, we think, a result of the growth investing tilt, if you will, in that portfolio.”

In July, Secondaries Investor reported that the fund had sold more than $2 billion of private fund stakes. AlpInvest Partners accounted for the largest share, with the remainder being purchased by a mix of secondaries funds and non-traditional buyers. Pricing and terms were understood to have been decided before the pandemic.

A UK public filing dated 6 May noted that Future Fund had transferred a stake in 2016-vintage buyout fund Charterhouse Capital Partners X to vehicles linked to AlpInvest Secondaries Fund VI and AlpInvest Secondaries Fund VII.

“The investments that we have sold have been infrastructure, but also property and also a very significant rebalancing of our private equity portfolio, which we completed through the beginning of this period as well,” Brake added. “So all up, we have, through the PE secondaries sale, shifted about A$6 billion worth of assets, and over the last few years it amounts to about A$12 billion in assets.”

Future Fund posted a -3.4 percent return for the quarter and -0.2 percent for the financial year to 30 June, below its 4.7 percent target, per the results. The institution has returned 9.2 percent over a 10-year period against a 6.4 percent benchmark.