Future Fund gets active

Having taken an indexed approach initially, the Future Fund is set to begin actively managing its equity portfolios in the future.

The fund’s chief investment officer, David Neal, said the indexed approach had been taken while the investment team sorted out policies and strategies.

“We are now moving the fund to be more actively managed,” Neal said.

“We will be rolling out the process during the next year or so.”

The fund has an equity allocation of 35 per cent, excluding its holding in Telstra.

Currently it has allocated 28.5 per cent to equities, investing $900 million out of the $5 billion allocation.

Neal said the equity allocation was being handled cautiously due to the current market volatility and more work was being undertaken on the debt portfolio.

The allocation to debt is 20 per cent and the investment team has 17.6 per cent of the mandate allocated, Neal told a Melbourne Centre for Financial Studies briefing.

“We will be focusing less on equities and more on building up the debt portfolio,” he said.

“If we are going to put risk into the fund, this will be the best place to do it.”

The fund is looking at areas such as distressed debt and hedge funds working in the sector.

“We are having discussions internally about what opportunities there are in hedge funds, but only if they survive the current crisis,” Neal said.

The fund has allocated 30 per cent of investments into what it calls tangible assets, which includes property and infrastructure. Because of the problems in the sector, only 2.9 per cent of funds have been allocated.

However, the largest allocation in the fund at the end of November was cash, with 48.1 per cent.

Neal said the fund was keen to work with managers to expand the number of mandates they manage.

“We are avoiding having lots of managers in the portfolio,” he said.

“We would like to talk to managers about the ideas they have and then allow them to run a number of mandates.”

The fund has been given an investment return target of consumer price index plus 4.5 per cent by the Federal Government.

Neal said when it was announced it seemed easy to achieve and said some people thought the Government had been too lax on the target.

“I feel we can meet that target in the long-term, but we may not achieve it every year,” he said.

“Currently it is tough but we are looking at rolling returns over a 10-year period.”