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Future Fund looks to private equity, alternatives

The Future Fund has made a shift towards listed equity, infrastructure and private equity during the 12 months to 30 September, and currently manages $91.7 billion.

The biggest mover in the portfolio was developed market equities, which has risen to 23.9 compared to 17.7 per cent on 30 September 2012.

Emerging market equities moved up 2.9 percentage points to eight per cent of the Future Fund, and Australian equities dropped by 0.4 of a percentage point to 10.3 per cent.

Future Fund chief investment officer David Neal said he recognised that emerging markets look “very attractive” on many measures, although there are cyclical risks to be aware of.

“You need to tread carefully into those lower valuations, but our approach is to steadily take advantage of that and we have been slowly continuing to build our emerging market exposures,” he said

Peripheral Europe also looks “very interesting”, said Mr Neal – although there are no strong signals in global markets at the moment.

The Future Fund’s allocation to infrastructure increased by 2.1 percentage points to eight per cent over the year to 30 September 2013, and private equity edged up 0.9 percentage points to 7.2 per cent.

The fund has returned 8.2 per cent per annum over the five years to 30 September 2013, exceeding its baseline long-term target of 6.8 per cent per annum.

Mr Neal said the fund’s private equity investment in distressed or undercapitalised businesses coming out of the global financial crisis has been particularly successful.

“By employing very strong, bottom-up skills a number of [our] managers were able to identify those strong organisations … and build up exposures to very good companies at very cheap prices,” he said.

But when it comes to the private equity and alternatives section of the portfolio, the Future Fund does not have a "bucket" to fill, said Mr Neal .

“Allocate, don’t allocate dollars to private equity and then tell managers to go and invest it. We think that’s a very good way of ending up with a very average private equity portfolio,” he said.

The alternatives section of the portfolio currently stands at 15.2 per cent - down from 17.7 per cent on 30 September 2012.


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