Like all global investors, Australia's Future Fund is facing a low-return environment. But while the sovereign wealth fund's head of private equity Steve Byrom said it will keep a “disciplined and prudent approach”, it is also looking for opportunities in technology venture capital.
“We are attracted to investing where genuine innovation and wealth creation are occurring,” Byrom said in the fund's 2015-16 annual report. “We believe we are in the midst of a multi-wave innovation cycle driven by empowering the consumer, cloud computing, big data, machine learning and mobile connectivity.” He believes many segments of the market are not offering sufficient returns for the risks investors are expected to take, and investors needed to look for “more idiosyncratic return opportunities”.
The Future Fund has made some smart bets on tech start-ups in the past. The A$122.8 billion ($94 billion; €86 billion) SWF had early exposure to ride-hailing giants Uber and Didi Chuxing. Other big names in its portfolio included Pinterest and Airbnb. It has also backed New York-based cloud infrastructure provider Digital Ocean, online education company Coursera and personal styling service Stitch Fix. As recently as August, it led the $50 million round of financing for California-based data specialist MapR Technologies with Google Capital and Lightspeed Venture Partners.
The institutional investor's private equity programme stands at around A$12 billion or 10 percent of the fund. The fund's mandate dictates a long-term return of consumer price index plus 4.5 percent a year, and it missed its target annual return last year, only posting 4.8 percent, against a desired 5.5 percent.
Byrom tells PEI that in a challenging global economic and market environment, investments that aren't correlated to traditional equity or debt market returns are particularly attractive. “That is why the role of private equity and particularly venture capital and growth equity in the Future Fund's portfolio is more important now than it has ever been.”
The Future Fund is not alone in its innovation push; superannuation funds First State Super and Hostplus Super set up an A$200 million venture capital fund with local tech enterpreneurs for domestic growing companies. The Queensland Investment Corporation allocates about 30 percent of its private equity portfolio to venture, previously backing success stories like Uber and Facebook.
The funds may, however, eventually have to look abroad. Australia does not have a deep and developed venture sector like the US, Future Fund's chief investment officer, Raphael Arndt, said at an event held by the Australian Private Equity and Venture Capital Association in September. To get the most out of disruptive themes around the world, Arndt said local companies and investors “must take an outward looking approach and seek to leverage off global innovation hubs such as Silicon Valley or Tel Aviv to take local ideas and sell them to the world”.