The A$64 billion (US$44.6 billion) Future Fund, Melbourne, Australia, released its 2007-'08 annual report Oct. 20, revealing the names of seven managers it has appointed in the past year.
The fund has changed its strategy to reflect the opportunities presented by the credit crisis and, in the report, said a key feature of its approach was to consider investments in broad categories with common characteristics, rather than as distinct asset classes. The fund said it believes this minimizes the risk of a potentially attractive investment opportunity being overlooked because it does not meet the, often narrow, definition of an approved asset class.
Since the fourth quarter of 2007, the fund slowed building its public equity position, only recommencing substantial allocations in the final few months of the fiscal year. As of June 30, the fund's equity exposure sat at 28.9%. New managers Schroder and the Asia-Pacific equities boutique Treasury Asia Asset Management both were hired for global equities mandates.
Over the past year the fund also moved to increase its alternatives exposure. The report said fund officials observed that sectors such as private equity, property and infrastructure had become heavily reliant on easy access to credit, and judged that these sectors would find it more difficult to attract capital in the future. Seeing this as a potentially attractive opportunity led the fund to prioritize the building of appropriate internal skills to enter these markets, the report said. The fund appointed MGPA a private equity real estate investment advisory company based in Bermuda and part owned by Macquarie Group to manage two distinct mandates, one in European and one in Asian real estate. It also appointed Sankaty Advisors, a U.S. private manager of fixed-income and credit instruments. Sankaty specializes in leveraged loans, high-yield bonds, distressed/stressed debt, mezzanine debt, structured products and equities.
However, at 0.1%, the fund's exposure to this sector is still way below its target weight of 30%. The difficulty in moving to alternatives was blamed on the time required to attract the appropriate people, and sticky prices that have taken a long time to reflect changed fundamentals.
In the annual report, the fund also said that since the last fiscal year it had been able to take advantage of distressed debt opportunities, where capital was scare and liquidity could command a premium. The fund invested in both short-term, high-quality bank bills, and more opportunistic debt investments, hiring Macquarie Investment Management and Pacific Investment Management Co.
A mandate also was awarded to BlackRock Investment Management to run overlay strategies, which it is understood has the charge of keeping the equity proportion of the portfolio within its ranges. Executives at the fund and BlackRock were not able to comment in detail on how this was being implemented.
This article is from Investment & Technology, a monthly publication based in Sydney that is written for professional investors in Australia.