Australia's Future Fund will nearly double its investment staff over the next three years to position itself for a post-pandemic environment where the pursuit of alpha will increasingly overshadow beta.
Some observers came away from recent Senate testimony by Future Fund CEO Raphael Arndt convinced that the growth plan would center on boosting the fund's private markets manager selection team but that's not the case, said Sue Brake, chief investment officer of the Melbourne-based A$178.6 billion ($135.4 billion) sovereign wealth fund, in a July 2 interview.
Instead, with "bulk beta" unlikely to offer the returns the fund requires anytime soon, additional staff will be needed throughout the organization to make up the difference by extracting alpha — in many instances incremental gains — from anywhere in the portfolio it can be found, Ms. Brake said.
That points to a broader, more granular alpha hunt. "That might be illiquidity, it might be complexity, it might be better management of our balance sheet, it might be better dynamic processes" — all things that can get those extra few basis points of return that can make all the difference in this kind of environment, Ms. Brake said.
When Mr. Arndt told senators in late May that the fund is moving to focus more on "alpha-seeking activity," it was in this broader sense of, for example, "changing the dynam- ic asset allocation program, leaning more heavily into private markets and complexity and illiquidity and control premium because ... you can't simply rely on the equity premium the way many people have over the last 30 years," Ms. Brake said in the interview.
Mr. Arndt and Ms. Brake this year have contended that the pandemic crisis has — as Mr. Arndt told senators on May 26 — brought about "deep and lasting changes to economies and investment markets," making the pursuit of investment returns more complex and challenging than ever before.
There are more important drivers of return now than there have been historically, which in turn calls for more breadth in portfolios and the pursuit of more granular diversification opportunities — a backdrop that requires more investment professionals, Ms. Brake said. By way of example, she cited "geographic levers" of investment returns that had come to be ignored as globalization went from strength to strength in recent decades. Going forward, the lack of focus on geographic factors "needs to be rethought," she said.
"All those things add up to just being more active about how we think about investing and that requires more people," she said.