Future Fund’s alpha hunt will result in increased staff

Australia’s Future Fund will nearly double its investment staff over the next three years to position itself in a post-pandemic environment where the pursuit of alpha will increasingly overshadow beta.

Some observers have returned from the recent Senate testimony of Future Fund CEO Raphael Arndt, convinced that the growth plan would focus on strengthening the fund’s private market manager selection team, but this is not the case. case, said Sue Brake, chief investment officer of the Melbourne-based A $ 178.6 firm. billion dollars ($ 135.4 billion) in sovereign wealth funds, in a July 2 interview.

Instead, with a ‘loose beta’ unlikely to deliver the returns the fund needs anytime soon, additional staff will be needed across the organization to make up the difference by extracting alpha – in many. extra earnings case – from anywhere in the wallet where it can be found, Ms. Brake said.

This indicates a larger and more granular alpha hunt. “It could be illiquidity, it could be complexity, it could be better management of our balance sheet, it could be better dynamic processes” – all things that can get those few extra basis points of return that can do everything. the difference in that kind of environment, Ms. Brake said.

When Mr Arndt told senators at the end of May that the fund was going to focus more on “alpha research activity”, it was in that broader sense of, for example, “changing the allocation program to ‘dynamic assets, relying more on private markets and complexity and illiquidity and the control premium because … you can’t just rely on the equity premium like a lot of people have done over the course of the past 30 years, ”Ms. Brake said in the interview.

Mr Arndt and Ms Brake have argued this year that the pandemic crisis has – as Mr Arndt told senators on May 26 – caused “profound and lasting changes in economies and investment markets”, making the the search for returns on investment more complex and more difficult than ever.

There are bigger drivers of return today than ever before, which in turn requires greater breadth in portfolios and the pursuit of more granular diversification opportunities – an environment that requires more investment professionals. said Ms. Brake. As an example, she cited the “geographic levers” of returns on investment that have come to be ignored as globalization has strengthened in recent decades. Going forward, the lack of focus on geographic factors “needs to be rethought,” she said.

“All of these things add up to be more active on how we think about investing and that takes more people,” she said.

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