Future Fund Chief Investment Officer David Neal has advice for any asset owners contemplating the kind of absolute-return-focused dynamic asset allocation strategy his fund is pursuing: If there’s too big an asymmetry in market knowledge and information between the investment team and the board of trustees, don’t even think about it.
That gap in sophistication is what leads boards to pull the plug on their investment teams when markets run headlong into walls — “a big source of value destruction,” he said.
While Future Fund’s structure was forged in the crucible of the worst market setback in living memory, Mr. Neal concedes it’s too early to say its investment team and board have proved their mettle.
“I’m absolutely open in saying we’ve not really been tested yet; we’ve not had that period of things having run and run and run, way beyond what they should have done,” he said.
Still, Mr. Neal is confident the fund would pass that test, should it come.
For starters, he said, unlike many other boards, Future Fund’s trustees are “all successful, financially literate people — specifically selected to be good at running an investment business.”
“All have been risk takers” and understand that doing things the way everybody else does it isn’t likely to lead to stellar results, he said. The board — meeting for the better part of a day once every month — is intimately involved “in the dynamic management of our strategy … (and has) a strong sense of ownership” of that strategy, he said.
That kind of board isn’t likely to resort to finger-pointing and recrimination when market squalls strike, Mr. Neal said.