Looking to the Future

Q:  How do you view infrastructure in Future Fund's portfolio and how is it performing against other assets?

WN: Infrastructure has been and remains an important asset class for the Fund. It contributes to the diversity of our portfolio and has generated strong returns for us over the years. Our model, though, is not to have a separate or distinct allocation to infrastructure that we target. Instead, we think about the total portfolio and finding the best opportunities, regardless of asset class, that will contribute to our risk and return objectives. 

Q: Future Fund's exposure to infrastructure has decreased since June 2014 as it exited a few investments. Will the exposure grow back to the previous level or remain unchanged?

WN: I wouldn't read too much into those kinds of shifts in the portfolio. The level of exposures will change as we realise investments whose thesis has played out and as we identify new opportunities across asset classes. We remain keen to explore and take up attractive opportunities in the infrastructure space and will do so where the case makes sense compared to other opportunities. 

Q: You are expanding your in-house infrastructure team. How will this change your investment plan and focus?

WN: While we invest through external investment managers, we are an active and engaged investor and work alongside our managers to access opportunities. This includes taking up co-investment opportunities and working with managers to identify niches that we think are particularly attractive to us, as well as taking up governance rights. Across our organisation we're keen to stay small enough to make sure our senior people have a detailed view across the total portfolio, but with enough resources to work on deals and co-investments and with our external partners. 

Q: What is your view on the global investment climate and current prices of core assets

WN: We look for the best available risk-adjusted returns across developed markets. Infrastructure assets with stable cash flow profiles and strong yields seem to be very attractive to pension and insurance fund investors which are seeking to match liabilities or seek better returns than what is available in high-grade bond markets. This is creating a lot of demand for core infrastructure investments. Our investment objectives lead us to favour a slightly higher risk profile, which we think can offer better risk-adjusted returns when investments are carefully selected.

Q: Future Fund is interested in the energy sector, especially in the US. How do you see the sector in other regions?

WN: The US power and energy space is large, has a high level of private market participation across a wide range of infrastructure sub-segments and investment opportunities, and has a wide range of well-established and experienced fund managers operating across a broad spectrum of risk and return profiles. This has offered us a number of interesting investment opportunities over the last several years. More of the energy-related infrastructure opportunities we have seen in other developed markets, such as Western Europe, have been large regulated or contracted utilities, which have a lower risk/return profile than what we have been targeting, given the strong competition for assets of that profile.

Q: You have exposure to emerging markets though listed mandates. Do you expect emerging markets to present good opportunities in the next 12 months? And how will you invest in these markets?

WN: Future Fund is developing its understanding of direct infrastructure investment in emerging markets and will consider increasing its exposure over the medium term. As with all of our direct investments (as opposed to listed), we take a bottom-up approach on a transaction or jurisdictional basis, and seek to leverage the expertise of managers who know their markets well and have a strong track record. 

Q: In being cautious about various sources of risk but continuing to invest materially in risky assets, what is your rationale? Do you find risk is well compensated by higher returns?

WN: We have reduced our risk exposure somewhat over the last year or so, but our overall positioning remains within the range we would expect given our risk-seeking mandate. We certainly are not of the view that we should chase returns up the risk curve in the current environment. We continue to see opportunities across asset classes but we are finding that it is harder to find and access those opportunities. This is part of the rationale behind our co-investment programme.

Q: Do you think infrastructure debt is a rising trend? Will you include it in your main investment scope? 

WN: Similar to the trend towards strongly yielding infrastructure equity, many pension and insurance fund investors are attracted to infrastructure debt investments. We already access this space, and we continue to see attractive risk-adjusted returns in some parts of the market, particularly mezzanine debt.