Australia’s A$250 billion ($165 billion) sovereign wealth fund is seeking stock pickers once again as global market upheavals make outperformance more elusive.
(Bloomberg) — Australia’s A$250 billion ($165 billion) sovereign wealth fund is seeking stock pickers once again as global market upheavals make outperformance more elusive.
The Future Fund is seeking active managers for its A$65 billion of listed equities as it positions for even more uncertainty, Chief Executive Officer Raphael Arndt said in a speech in Sydney on Thursday. The fund had pivoted away from them six years ago as markets fueled by loose monetary policy made it difficult for managers to “consistently add value over and above their fees.”
The fund returned 1.1% in the year through March, which was still better than Australian and US share markets over the period, according to an update Thursday. It made 3.4% in the March quarter.
“Conditions have changed. Economies are diverging and companies can better distinguish themselves in a more challenging environment,” Arndt told an Australian Financial Review conference in Sydney. As a result, active strategies “are increasingly attractive, provided that we can be confident that returns are driven by skill and not luck.”
Arndt said the Future Fund will be using new technology to gauge how investment managers deliver their returns and “to better understand whether skill actually exists or whether managers are just applying a mechanical strategy which can be re-created cheaply.”
The fund’s biggest holdings were in alternative assets (17.1%), developed market stocks (17%) and private equity (16.4%) at the end of March, according to Thursday’s update.
Active/Passive
Asset managers around the globe have been embracing passive funds for years due to lower fees and lackluster performance by their active rivals in relentlessly upward share markets. However, stock pickers have been gaining an edge as rampant inflation and soaring interest rates upended markets and as economic policies to battle prices increasingly diverge.
“Paying sometimes high fees to fund managers is necessary to access skill. Because of this, investors sometimes shy away from skill-based strategies,” Arndt said. “In my view, investors should be questioning these trade-offs again.”
For the first time, small cap equities were also attractive to the fund due to changes in domestic markets, Arndt said. In recent months, it had commenced a new program to invest in them.
“A previously considered safe investment like an office building or shopping center is no longer safe,” said Arndt. “A large cap company can be split up, regulated or its markets disrupted.”
(Updates with latest return in 3rd paragraph)
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