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Investment

Future Fund cleared to manage select asset classes in-house

Future Fund chair Greg Combet said that the $300 billion sovereign wealth fund has received the green light from the government to manage a portion of its portfolio internally, speaking at a Committee for Economic Development of Australia (CEDA) event in Sydney yesterday.

Combet, who succeeded Peter Costello as chair last year, said the Future Fund now has the authority to "undertake Australian infrastructure and property sector transactions" and to "manage assets without an external investment manager."

This marks a departure from Future Fund's long-standing practice of relying solely on external investment managers.

"... this additional capability is intended to help access new opportunities in Australian infrastructure and property that we might otherwise be unable to access efficiently, or which external managers may not be focused on," Combet said.

"... the capacity to be able to make transactions and manage investments internally will increase our flexibility and reinforce our focus on value for money..."

However, he downplayed the development, noting that the decision to manage certain asset classes internally "shouldn't be seen as particularly significant," rather framing it as "an optionality for us to consider."

"We do not anticipate a significant shift away from the way in which we partner with our external managers. We continue to recognise the benefits these partnerships bring in terms of insights and skills and our ability to remain focused on the overall portfolio," he said.

Future Fund, he said, already employs a hybrid model of investing in many instances, including in infrastructure, where it uses an external manager but retains governance rights that entitle it to board seats.

Future Fund is also scaling up its use of co-investment sleeves that allow it to increase its exposure to select assets "without the additional fees that would ordinarily be paid," he added.

Combet also addressed Future Fund's new Investment Mandate issued by the government last year, which requires it to consider Australia's national priorities - increasing the supply of residential housing, supporting the energy transition, and delivering improved infrastructure located in Australia - in its investment decisions, a move Angus Taylor, then shadow treasurer and now shadow minister for defence, decried as a "raid on the nation's nest egg."

Combet said he welcomed the guidance but was clear that it won't alter Future Fund's statutory responsibility to maximise returns, make independent commercial decisions, seek appropriate risk adjusted returns for individual investments, or change its approach to portfolio design.

"It is entirely a matter for the board to determine whether we invest in these areas of national priority and on what terms," he said.

But he noted that these national priorities require significant capital and a long-term view, and address pressing domestic economic needs.

"Importantly, they align with our investment strategy. The national priorities are consistent with our purpose to invest for the benefit of future generations of Australians," he said.

Read more: Future FundCEDACommittee for Economic Development of AustraliaGreg CombetSovereign wealth fundAngus TaylorEnergy transitionExternal investment managersInvestment MandatePeter CostelloPortfolio managementResidential housing