The Future Fund has increased its stake in alternative assets and appointed two new fund managers in a bid to combat the tailwinds coming from the global equities market.
Australia's sovereign wealth fund increased its allocation in private equity to 14.1% (FY17: 12%) and alternatives to 15.3% (FY17: 14.8%) over the course of the 2018 financial year, its annual report shows.
New York-based Key Square Capital Management and California-based Clocktower Group were awarded an alternatives mandate to oversee macro-directional strategies. This asset class is co-managed with 12 others, including Pendal Group, Bridgewater Associates and BlackRock Alternative Advisors.
Increasing its alternatives exposure was a means to diversify at the total fund level and "offer significant protection to unexpected tail events in global equity markets," it said.
|Sponsored by Franklin Templeton|
How much further can global growth fly?
The fund said diversification is an important facet of its investment strategy and has delivered strong returns net of costs while reducing volatility.
"We are therefore more willing to pay higher fees to our investment managers or areas where significant value is added over broad market exposure (such as private equity) or for exposures which are truly diversifying (such as hedge funds)," it said.
The fund flagged it is transitioning to a "cheaper, more passive approach" in its listed equities portfolio. This is an area where manager skill is less evident, it said.
Macquarie Investment Management solely looks after the Australian equities strategy after Janus Henderson Investors was dropped from the portfolio during FY18.
Higher fund manager fees were reflected in costs incurred during the period.
The fund incurred $291 million of fund manager expenses, about $36 million more than the prior corresponding period.
Direct costs mounted to $319.2 million. However, total costs (which includes look through costs of 1.34%) fell from 1.611% to 1.571% year on year.
The Future Fund is not a superannuation fund. It was established in 2006 to assist the Government to meet its unfunded superannuation liabilities and to fund nation-building projects.