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Side Letter: Future Fund’s reshuffle; PE’s deal delays; Iowa’s allocation issues

Future Fund has rejigged its investment leadership model to prepare for macro turmoil. Plus: A labour shortage among private equity service providers is causing deal delays; and an Iowa pension is grappling with the denominator effect. Here's today's brief, for our valued subscribers only.

Just happened

Future Fund: Making another prescient decision? (Source: Getty)

Investing for the future
Future Fund, Australia’s A$248.9 billion ($173.6 billion; €164.7 billion) sovereign wealth fund, has rejigged its investment leadership team after incumbent chief investment officer Sue Brake stepped down. Brake, who had been in the role since December 2020, has decided to leave the fund for family reasons, per a statement this morning. She joined Future Fund as deputy CIO for portfolio strategy in 2019 from Willis Towers Watson, where she had been head of strategic advisory. Chief executive officer Raphael Arndt, who served as CIO from 2014 to 2020, will resume his prior duties until a replacement has been identified.

Future Fund will use Brake’s departure as an opportunity to restructure its investment team to optimise governance, people and technology, it noted in the statement. The institution will have three deputy CIO roles reporting directly to the CIO: private equity head Alicia Gregory will join the senior leadership team as deputy CIO for private markets; Wendy Norris, who previously held that title, will become deputy CIO for change and innovation; and Ben Samild, who was previously deputy CIO for portfolio strategy, will become deputy CIO for portfolio construction.

The restructuring is intended to ensure the fund is “best placed to meet the challenges of the evolving macro environment”. Future Fund has pedigree when it comes to making bold decisions in advance of difficult investment periods. In 2020, Private Equity International named the institution one of PE’s most prescient investors after its decision to begin a major portfolio rebalancing immediately prior to the pandemic. “You have no idea what’s coming but you want to make sure you’re positioned well for whatever comes, so we made the decision to lighten our [PE] portfolio last year and create some more liquidity for the fund,” Gregory told us at the time.

This leadership overhaul may well prove another prophetic move by the Aussie investor as inflation, interest rates and geopolitical uncertainty start to bite.

PE’s (not-so) great resignation
A labour shortage among PE service providers is hindering the industry’s ability to get deals over the line. That’s according to a survey from outsourcing business BDO, which found that 39 percent of US mid-market firms said “lack of bandwidth” among vendors hindered deal closings, up 11 percentage points from when the question was asked last year, our colleagues at Private Funds CFO report (registration required). PE’s situation is spurred by several factors on top of an already challenging overall labour market: aside from compensation, for example, younger would-be candidates are increasingly interested in ESG-related roles.

Firms are taking various approaches to fill their talent gaps, with 55 percent boosting their dependence on technology and automation, and 61 percent turning to contractors. At the end of the day, though, money talks – 54 percent said they will raise compensation and benefits. Firms with less than $1 billion of assets under management were more likely to plan compensation increases, in what appears to be an effort to compete with bigger players.

IPERS does some damage control
Iowa Public Employees’ Retirement System is the latest US pension to grapple with the denominator effect. The $40.8 billion institution noted during an investment board meeting last week that it may reduce its allocation to PE in an attempt to bring the size of its portfolio under control, our colleagues at Buyouts report (registration required). IPERS’ PE allocation target is set at 13 percent and its exposure is now closer to 21 percent. “One thing we can control as staff is the level of commitments,” senior investment officer Pat Reinhardt said at the meeting. “And we can anticipate that commitment levels and bite sizes will be a lot lower going forward.”

Other LPs have also been struggling to get their allocations under control: the Oregon Public Employee Retirement Fund‘s exposure, as an extreme example, ballooned to more than 27 percent in the first quarter of 2022, making it the $96.7 billion fund’s largest asset class. With some investors forced to take remedial action, such as by cutting ticket sizes or even declining re-ups, the road ahead for PE fundraisers could be rocky.

Essentials

17Cap’s ESG hire
Preferred equity and NAV-lending firm 17Capital has hired Claire Hedley from Goldman Sachs Asset Management as its first ESG director, our colleagues at Secondaries Investor report (registration required). Hedley most recently led GSAM’s ESG client strategy group in London and was responsible for client facing and commercial ESG efforts across EMEA. Hedley is the latest in a recent flurry of ESG hires by secondaries players – May alone saw Pantheon name Eimear Palmer, former head of responsible investment at ICG, as its first global head of ESG; and Norway’s Cubera hire Urs Bitterling, former head of sustainability at Allianz, as chief sustainability officer.


Today’s letter was prepared by Alex Lynn with Helen de Beer