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WEALTH

Future Fund finds the unconventional pays

No other sovereign wealth fund looks like Australia’s. Its chief investment officer reckons that, by some measures, almost two-thirds of the fund is in alternative or illiquid assets. Even so, it’s working.

Australian-dollar-R-600

When Australia’s Future Fund was established as a national sovereign wealth fund in 2006, it set out with a target return of 4.5% over the consumer price index. To March 31, that translates to a target of 6.9% since inception.

That was in the heady days before the financial crisis when, in Australia in particular, it appeared that the good times would last for ever and asset growth could be taken for granted. When one considers what has happened since, from the financial crisis to European sovereign debt, from bank recapitalizations to Brexit, that looks like a high bar. But the Future Fund has beaten it – 7.7% a year from inception to March 2017.

A large part of the reason it has achieved this has been its willingness to embrace alternative assets to a far greater degree than other sovereign funds, or indeed almost any large institutional investors. It has always been set out this way – some of its earliest internal hires were experts not in global equities but in forestry, infrastructure and private equity – but a closer look at its allocations reveals just how dramatically the fund has sought to sidestep the mainstream.