Future Fund: Secondaries help us ‘maximise returns’

The Australian SWF has exited around $3.4bn of private markets investments in recent years, according to deputy chief investment officer Wendy Norris.

Future Fund, Australia’s sovereign wealth investor, has embraced the secondaries market in recent years in order to maximise returns.

Speaking on Wednesday at the Australian Investment Council Conference in Melbourne, which was broadcast online, deputy chief investment officer Wendy Norris told delegates the institution has exited around A$5 billion ($3.4 billion; €3.1 billion) of private markets investments in the last few years.

This included the sale of a portfolio worth around $1 billion to Canada Pension Plan Investment Board in 2016, Secondaries Investor reported at the time.

“When assets become mature and the expected look-forward return has decreased, we look to sell them and redeploy the capital within the portfolio,” she said.

“The increasing maturity of secondary markets is helping us to optimise the portfolio that we hold today and we are focused on ensuring that we in the best possible position to maximise returns without taking excessive risk in the future.”

Future Fund’s acceptance of secondaries comes amid heightened competition in the venture capital market and a growing dispersion between the best and worst performing funds. Venture capital accounts for around A$15 billion of its A$25 billion private equity portfolio.

“When you look at the average market returns from venture funds over the last 20 years, there has been little return for illiquidity or the higher risk of early stage companies,” Norris said, noting that start-up companies are staying private for longer.

“To ensure that we end up earning an acceptable return for the risk, we’re keeping a laser-like focus on partnering with top quartile managers that are responding proactively to the changing macro environment. We, like the fund managers we invest with, have more capital to manage and we’re working harder to maintain returns in a low interest rate environment.”

Future Fund’s former head of private equity Steve Byrom told sister publication Private Equity International last year that high prices for assets and a lack of differentiation among GPs’ business models had made private equity less attractive. The sovereign investor would consider using the secondaries market again to rebalance its portfolio, which is preferable scaling commitments up or down, he added.

Future Fund has invested in technology to gain a greater understanding of its various exposures, Norris said.

“We’re investing in our organisation, enhancing our technology capability which is giving us more insight into our portfolio exposures,” she noted. “We’re also uplifting our leadership skills as we push ourselves to collaborate more effectively and make better investment decisions.”

The Melbourne-headquartered institution manages more than A$200 billion across six public asset funds after receiving government funding via the A$3.9 billion Future Drought Fund, A$2 billion Aboriginal and Torres Strait Islander Land and Sea Future Fund and a top-up for the Medical Research Future Fund.

The sovereign wealth fund is one of Australia’s most enthusiastic alternatives investors, allocating around 45 percent of its portfolio to private equity, debt, timberland, infrastructure property and other alternatives. Its allocation to private equity far exceeds the 4 percent average for superannuation funds in Australia, per AIC data.