Future Fund builds cash holding as investing uncertainties grow

Future Fund has a near record 15 per cent of its $162.3bn in funds under management in cash.

Raphael Arndt, Future Fund CEO

The Future Fund has cashed up due to investment uncertainties, with a near record 15 per cent of its $162.3bn in funds under management in cash after selling down its private equity and other assets.

In March, the Fund had 9.6 per cent in cash and 18.2 per cent in private equity and 33.7 per cent in equities. It sold down the latter two to boost cash reserves.

New boss Raph Arndt described the fund’s approach as conservative in an environment where “interest rates are approaching zero around the world, monetary policy has shot its bullets and fiscal policy is being employed to revive international economies”.

The 12-year Fund veteran was speaking with The Australian some six weeks after assuming the top job after David Neal moved to take the top job at IFM.

The sovereign wealth fund is still to name his replacement as chief investment officer with Sue Brake presently acting in the role.

“My job is to make sure the investment team has the right tools to make the right choices,” he said.

Arndt will still sit on the investment committee so will have some say in its future investments.

The fund also manages other funds for the government including the Medical Reserve Fund, Aboriginal and Torres Strait Islander Land and Sea Fund, Disability Care Fund, Future Drought Fund and Education Investment Fund.

This brings total funds under management to more than $200bn with the Future Fund having $162bn under management.

The Future Fund cannot be touched until 2027 but the small funds make annual returns to the government.

Arndt noted the Fund “was the government’s single biggest financial asset which brought with it a strong responsibility”.

“Society is more demanding now about corporate behaviour and governance,” he said.

This meant “‘companies need to be focused more on doing the right thing and behaving appropriately”.

Asked about Rio Tinto’s actions on blowing up a 46,000 year old Indigenous site in the Juukan Gorge Arndt said “that is exactly the sort of issue we are focused on”.

He said the Fund did not believe in exclusions so had not sold its shares in Rio Tinto, but would tackle it up at the appropriate time before its annual meeting.

“Reputational damage is a real issue for mining companies along with those in financial services and aged care,” he added.

Arndt said because the Fund did not have to keep funds aside for any withdrawals this meant it could take long-term views on asset values.

He said the Fund was reviewing its portfolio now to see what valuations should be set and assets such as airports and property would obviously be looked at closely.

The Fund was facing an investment horizon that could see lower interest rates for the rest of this decade which meant the Fund had to ensure its money was invested in the right areas.

“Investments in private equity and venture capital ensured the Fund was getting access to the best ideas,” he said.

He cited the Fund’s recent investment in a data centre near Canberra’s airport as the sort of investment he wanted to make for the long term.

Other areas included in connectivity such as mobile phone infrastructure and last mile infrastructure.

Arndt said he planned only “incremental changes” to its operation because the Fund is clearly not broken.

Its managers and staff are now all working from home due to the Melbourne lockdown.