Capital Allocators – Inside the Institutional Investment Industry

[REPLAY] Raphael Arndt – Australia’s Sovereign Wealth Fund CIO (EP.70)

Jan 29, 2024

01:25:40

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Raphael Arndt, CIO of Australia’s sovereign wealth fund, discusses portfolio management, infrastructure investments, public and private markets, venture capital, team dynamics, compensation, views on China, and the current market environment. They also explore the creation of the Future Fund, investment strategy, managing assets, portfolio positioning, US vs Aussie investors, improving operations, and favorite achievements. They admire Walt Disney as an innovator and emphasize the importance of hard work and being prepared to take risks.

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Quick takeaways

The Future Fund follows a one-team, one-portfolio philosophy, focusing on building a diversified portfolio for the entire fund rather than diversifying individual asset class portfolios.

The Future Fund emphasizes being nimble and flexible in their investments, adjusting their strategies based on market conditions and potential downsides.

The Future Fund prioritizes private equity and venture capital investments, conducting due diligence to select managers with proven skill and alignment, while also strategically utilizing co-investments.

Deep dives

Investment Philosophy and Approach

The Futures Fund, Australia's $145 billion Sovereign Wealth Fund, follows a one-team, one-portfolio philosophy, emphasizing a total portfolio approach. They focus on building a diversified portfolio that makes sense for the whole fund rather than diversifying individual asset class portfolios. They use technology to measure performance and analyze factors to identify sources of return and skill. The fund primarily uses external managers for implementation and scrutinizes managers for skill and alignment before investing. They also emphasize being nimble and flexible, being prepared to adjust their investments based on market conditions.

Introduction

3min

Building a New Sovereign Wealth Fund

23min

Investment Strategy and Managing Assets

25min

Portfolio Positioning and Market Analysis

15min

US vs Aussie Investors: Currency, China, and Investment Opportunities

4min

Improving Operations and Collaborative Technology

11min

Favorite extracurricular achievements, investment pet peeve, and a person to meet

2min

Admiration for Walt Disney and Lessons Learned

3min

Raff Arndt is the Chief Investment Officer of Australia’s AUZ$145 billion Sovereign Wealth Fund, the Future Fund. He trained as an engineer and dove into infrastructure policy at the beginning of Australia’s privatizations in the late 1990s. After investing in the space for six year, he joined the Future Fund in 2008 to head the infrastructure team. Six years later, Raff became CIO.

Our conversation spans all aspects of the management of a next generation institutional portfolio, including a one team, one portfolio philosophy, disaggregating beta and factors from skill in public markets, separating the impact of leverage and timing from skill in private markets, venture capital and co-investment opportunities in a large pool of capital, the option value of flexibility, the team required to make decisions in this format, compensation, fees, views on China, and the current market environment.

Australia created the Future Fund only eleven years ago with a mandate to compound capital for 20 years before even contemplating withdrawals. It has been described to me as a pool of capital with the size and transparency of CalPERS and the sophistication of Yale. I’m sure you’ll soon understand why.

Follow Ted on Twitter at @tseides or LinkedIn

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