Australia’s SWF Turns to Timber | Chief Investment Officer

The Future Fund plans to include timber in its allocation to “tangible assets,” which to date have only included real estate and infrastructure.

(March 3, 2010) – Australia’s Future Fund, which has about $66.2 billion in assets under management, will seek timber plantation investments as part of its alternative investment program.

The fund has invested about $7 billion or 11% of its portfolio into alternative assets, according to its latest portfolio update of December 31. Last quarter, it allocated $5 billion to hedge fund investments. It plans to double its investment in “tangible assets” from 3% to 6%.

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The fund’s General Manager Paul Costello told a Melbourne conference recently that the SWF’s allocation to cash has been reduced significantly, with an increase in listed equities and alternative investments contributing to the difference, according to Sydney-based Conexus Financial.

“Over the quarter, the level of cash in the portfolio fell from 32% of the fund to 15.5% as we further built the program to meet our long-term objective,” the Future Fund said in a news release. “We have also taken up attractive opportunities in debt, property and infrastructure markets as we build towards target exposures,” the report stated.

The sovereign wealth fund, established in 2007, has found opportunity from the global financial crisis by investing in a range of distressed debt and equity, and is now accepting a period of more sustainable but modest growth.

Ralph Arndt, the Future Fund’s head of infrastructure, will lead the transition into timber. He previously worked with Hastings Funds Management, the Australian Council for Infrastructure Development, the Victorian Department of Treasury and Finance and Ove Arup.

Hedge funds and private equity firms face profit crunch, EU states still split on regulations in Europe, aimed at enforcing restrictions on the industry.

(March 2, 2010) – Hedge funds and private equity companies face a difficult road ahead with higher costs and lower profits, Reuters reported.

“Investor expectations of governance have increased dramatically…It’s quite hard for single-strategy boutiques to meet those expectations,” Charles Kirwan-Taylor, chief investment officer of RAB Capital told the Reuters Hedge Fund and Private Equity Summit in London.

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While small firms are up against cost pressure to slash fees and satisfy demand for managed accounts, private equity firms are unable to sell as many companies and the $1.6 trillion hedge fund industry has found its client assets considerably reduced.

According to a survey earlier this year from Preqin, a London-based data provider, $246 billion was raised by 482 funds last year, down 61% from 2008 and the lowest since 2004.”We are seeing a trend away from the bigger mega-buyout funds toward more of a focus on smaller mid-market and regionally focused vehicles,” the report said. The average period of time to raise a fund is now more than 18 months, when it previously stood at just a year.

And despite last week’s rumors that members of the European Union were nearing a compromise on hedge fund and private equity rules, members continue to remain divided about the scope of the regulation, the use of depositaries and rules for funds based outside the EU. The divisions reflect “deep ideological divisions about regulating financial markets in the wake of the economic downturn,” the Wall Street Journal reported.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742