YouSaid · the spoken record

Raphael Arndt

lines on the record: 110
first: 2025-09-01
most recent: 2025-09-01
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“But we made the decision early in 2008 that the world wasn't going to end, that something was going to happen to save it. And if you had that view, that assets looked very cheap. And being somewhat timid, what we decided to do was move a lot of money into credit. And so we appointed three broad credit managers. I said we use external managers. And in this sort of situation, there was really no other option, but we just wrote multi-billion dollar mandates to three managers and just said, get set, get in the market, do whatever you want, make money.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“But we, of course. We only had probably about a dozen people in the investment team, and we were still writing strategies, and we didn't know each other, and the board didn't know us. So actually, the first time I went to the board with an infrastructure investment, I had to say, what would you like the board paper to look like? Should it be five pages, 15 or 50? And they actually said, we're not sure write one of each.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of the fund ever since, which is if you have a very high conviction in something, then you should act on it. And so when I joined, it was really just prior to the crisis and I was really confronted with this problem in the infrastructure where everyone said, how will you ever get set? It's a crazy job. Assets are really expensive already. Nothing's available. And I started writing a strategy. And as I spent more time here, I ripped up that strategy at least twice because it took me a little while to understand what a one portfolio approach was that eventually emerged with a strategy that said, let's be flexible, let's not lock into a particular asset allocation, and let's sort of approach this from first principles. And suddenly the financial crisis happened. And so fortuitously and through some good decisions made by the people who were here before me, we were sitting with about 80% in cash when laymans went broke. And so we didn't have a problem with liquidity.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think we were very, very lucky with timing. I actually joined right at the beginning of 2008. I signed on at the end of 2007. And in the second half of 2007, the board was under immense pressure to get started with the investment program. They literally had tens of billions of dollars of cash being rolled overnight. And as you know, markets were running very hot. And so they made a decision to start to put an exposure on just through index positions and to just steadily step into the market over a period of time. And David Neill, when he was hired a CIO and the person who was in the head of strategy role at the time, Tony Day, came on board before I joined. The very first thing they did was look at markets and say, we're not sure what's going on, but we think the equity risk premium is negative. Something's wrong and we should just stop investing. And they did, which was a very brave call. And I would say really set up the DNA.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“I said, and that portfolio has delivered really strong over 20% net returns over 10 years now, which is very satisfying considering what's been happening in the world.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“How to get access to the best performing managers, and we're all lucky enough in 2009 that there were other people going the other way and we were able to get some access. And so we've worked very hard to slowly build the portfolio to the point where today it's about a bit over $2 billion of exposure, which is meaningful to some extent at the fund level. But more importantly, it's also very diversifying from the rest of the fund and that's quite valuable. And we have also in the last three years or so started to co-invest with the venture managers. So we do fund of funds, we do directs and recently we've done some co-investments which really follow ons similar to the private equity approach where we would only do that if the manager was following on themselves and if they were saying to us this is an attractive idea we think you should look at it and we've done about 30 or so of them.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“The second thing was there seems to be a correlation of high performing venture vintages with recessions and a hypothesis that we can't really test is that when people lose their jobs they go and start up that business and do that thing that they've always wanted to do but never got around to before. And so we thought that was something that was attractive for the fund from a diversification point of view. And then lastly a good idea doesn't need economic growth to be successful and it doesn't need leverage. It seems to be a strategy that can perform even in adverse market conditions, albeit that you have to be conscious of the flow of funds in and out of the space. And so those things together led us to a focus on early stage venture rather than the late stage. We've tended to avoid the late stage and we've primarily done that through funder funds because as I said small team small check sizes”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. Yeah, so the first question is why bother? It's a capacity constrained strategy and will it move the needle? For us, I think there were a couple of things. Firstly, our research showed that unlike almost any other asset class, the strongly performing managers tend to be persistent. And I think that's probably due to the fact that the entrepreneurs are attracted to the people who backed the last successful deals and go to them first. And that does change the so-called winner circle does change over time, but only very slowly. And so the first decision we made was if we're going to do it, there's no point doing it at all unless we can get into the high-performing managers. I think the data we saw at the time was something like 80% of venture managers don't return capital and only 6 or 7% return enough capital to justify their existence. So that's pretty daunting statistics.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, we've done probably 20 or 30 co-investments in private equity over the years, so it's not an enormous number, but it's enough to have a view. We also co-invest in the venture portfolio and we've done about 40 there as well. And so I would say that broadly speaking, the performance is in line. It's a little bit younger portfolio, and so we don't really have the same data yet that we do in the fund book, but certainly we don't think there's an adverse selection happening.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Skill set firstly, secondly. Their alignment with the manager are they putting enough capital in? Are they underwriting and selling down in a secondary, which we typically would avoid? Or are we coming in the primary deal? And then are we tied to them so that we go in when they go in, we go out when they go out? And then lastly, more of a portfolio risk point of view, what is the exposure and doesn't make sense for us? And so we've developed a process internally where we can do that reasonably, efficiently and typically would be able to be there when the transactions close. I guess the other part of it is you do get quite a good insight into the manager and their process. So it does help us re-underwrite the manager if that's what we're intending to do.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“We think that's an important tool We do quite a bit of co investing in all the private market asset classes and also a little bit alongside the hedge funds and credit managers. But particularly in private equity, the issue with co-investing is, well, firstly, you want the manager focused on their strategy first and foremost and their fund. You don't want them worrying about are they keeping their LPs happy? you know, have they sized it right or do they have to undersize it in the fund to allow some co-investment? So we don't demand it. We want first and foremost the manager to be good at investing the fund. But where they would have a situation where they might otherwise bring a competitor in alongside them, for example, we'd prefer them to bring us in and other people who are like-minded. We don't try to re-underwrite the deal. We've already underwritten, mismanager. We've already back them and we trust them. So our due diligence process will be focused on is it in their...”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“We do use funder funds for very specific strategies, so we're very agnostic as to how we implement. But for the larger managers, we could write a 300 or $400 million check to a fund. And ideally, that's what we would do because we've got only seven or eight people in our private equity team and they've got a lot of managers to get across. But for the smaller ones where, say, we can write a $50 or $70 million check, but they're in a strategy we really like, so small US buyout, for example, then we would do that through a fund of funds.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a lot of brand nomes we don't have, and it varies wide, but one of the most significant reasons is because they just use leverage we found to juice up their returns. And we don't think that's attractive. And we're really focused on the smaller managers that have a tremendous amount of skill in how they can improve a business. It's not just where they listed or delisted or selling off bits or buying other companies to merge in. It's actually helping the management team access a new market, grow to a new industry that they've got some experience in providing capital to help them grow where they can't get that capital from the market for some reason. It's those types of managers and those types of skills.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's quite analytical. So, in most cases, we would like a manager with some track record and we would like to understand the underlying performance data at the asset by asset level. So we would delever the returns, would take the use of debt out because usually just using more debt gives their LPs more risk and more upside for the manager, but with a lot of downside risk. And we take the market timing out by doing something called a public market equivalent analysis, which is really just saying if we take the cash flows that go in and out of this private equity account and put them in the equivalent equity market index with the same timing, what would the return have been and then compare those two things?”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we're not interested in people who can just time markets, putting capital in and out because if we're doing that, we're probably putting the money in equities when it's not sitting with the private equity manager. And so we started by identifying managers with real skill who can improve a business, not just slice and dice it or listed or delist it and move the money around because as someone approaching a universal owner, we're going to own it. whether it's listed or unlisted and there's no point just paying fees for those transactions and”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“So again, we don't set out to buy a diversified portfolio of private equity. I guess the typical portfolio construction would be 60 or 70% buyout, for example, and then a bit of growth and maybe a small amount of venture. Our portfolio has no large buyout at all because we think that large buyout is really just levered equities typically. And if there's still added on top and there might be, then most of that goes away in fees. So we don't think it adds a lot for the portfolio. So our private equity portfolio is about half venture and growth equity and the rest is small buyout. And what we're really looking for in private equity is two things. One is a clear, sustainable outperformance over equivalent equity indices after adjusting for market timing ability by the men.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“We approach everything in the same way. The question is what can this asset class do for the portfolio as a whole under what scenarios will it pay off? Under what scenarios will it be penalised? How does that compare to some combination of equities and cash or equities and bonds? And so why are we doing it?”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, if you go back to the objectives and also your comment about scale, so today the equity book is maybe $45 billion, and we're just not going to find enough skill out there in the world to invest $45 billion, but also a pure alpha book does not give us the beta. We've actually structurally taken the beta out of it. So this desire to get exposure to the equity risk premium only comes from those other things. We can do it very, very cheaply and flexibly.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we have some of those. So, our manager list is on our website. It's quite public. And we have, for example, Citadel as one of those managers. So I think it's the same thing. It's just when we aggregate those things up, what are we getting? What are we paying for? Those large hedge fund sort of multi-strategy hedge funds, many of them have delivered significant beta, whether it's equity beta or credit beta. And that is not something we want to pay for. So I think it's just a matter of, again, in the same way analysing the track record of these managers, regressing it against a whole variety of factors, in this case things like carry and commodities as well as bulk asset beaters and understanding where is the skill, where is the return coming from, and only paying for the part that's valuable.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Should clarify we have many managers in that strategy. They're mostly actually sort of fund to fund separate account type mandotes because we don't have the bandwidth in our team to track 30 or 40 underlying managers. What we're doing is they're accounts that designed in such a way as they're very unlikely to overlap with each other. So each of those underlying managers might hold 20 longs and 20 shorts, for example. Our system can aggregate all of their positions and report back to us on an aggregated basis, either in isolation or overlying the long-only portfolio. And we can see where if we've got position concentration, we can see if there's”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“And the way they charge, essentially, typically charges you for the beta return, the factor return, and the stock picking skill. Only one of those deserves compensation. And so using the technology, we can disaggregate those things and regress against different types of factor returns and things like that and isolate where this skill actually exists and will keep those managers. Mainly our alpha program has now migrated to long short market neutral hedge funds because we can pick managers with pure skill and it's very evident if they have it or not very quickly. We're only paying for the alpha. But secondly, they have very concentrated portfolios and so the likelihood that they're going to cancel each other out is very low and we can track that in the system now and make sure that we're getting an efficient portfolio implementation.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so developing a factor strategy was high on the agenda. Now, we've done those two things and we can execute those through third-party managers for literally a handful of basis points in this day and age, and we do. When we looked at the portfolio originally, that was where the bulk of risk and the bulk of return sat in the beta and in the factors that the managers were selecting, so you picked a value manager or if not it's just a manager who had adopted a value style. And so there was no point at all paying a manager for those sort of things. We do believe in active management. We do believe that skill exists and is sustainable. That in itself is something people could debate, but we believe in it. We don't think that skill is widely available in equity markets today. Technology means that it's being arbitraged away very quickly. And the manager, business.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Possible Secondly, though, I think the research tells us today that there are certain types of factor approaches, particularly value and quality, but there are others that do seem to pay off over long time periods, albeit if you're worried about tracking an index or shorter term performance, you have to worry about that. In our case, we're not worried about that. We're only worried about whole of fund performance in an absolute sense over the long run.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Job, and so we ended up with slightly better than the beta, which was a good outcome, but it was not ideal. And so even if you could pick a good manager, you still had to build a total portfolio that made sense. I sort of think of it like if you want a car, you don't go out and buy the best steering wheel, the best seat, the best windscreen, and hope that you get a good car. You actually have a plan for a car and buy the parts that suit the car you want. So having built the technology to measure performance and disaggregate performance, we then sat down with the board and said, let's start from first principles. What are the objectives of an equities program? One, we think that the equity risk premium exists and it's pretty reliable. And so holding equities over a long time frame, we think should deliver a source of return for a long-term investor. Now, that's not rocket science, but it's important to state it very clearly because if that's all you wanted to do, you would buy the beta and you would buy it as cheaply as possible and in as most liquid way as possible.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, sure. So I guess when I came into the role we'd been doing equities for, well, obviously since inception, that was about eight years, seven years. And the first thing we started doing was some attribution work. And I guess we're lucky enough today to be living at a time when the technological tools available to us are improving our ability to do that type of work. They weren't available a decade ago when we started the program. And what became apparent very quickly was that while the team had done a really good job of picking the best managers in a particular style, whether it was a value manager, an emerging market manager, a thematic manager, when we aggregated up all of the maybe 20 or so mandates we had across that portfolio, by and large they cancelled each other out at the whole portfolio level and I would have expected we would end up with something like beta less fees. Now actually as I said the team did a”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, suddenly capacity constraints are an issue that we need to think about. Obviously, in the more liquid asset markets, particularly equities and bonds, those are accessible, although not all strategies. So we do have some levers that can scale, but we work very hard and we develop relationships with managers and we have to fight for capacity and we recognize that those relationships are mutual. They're two-way and we try to be very open with our managers and share our views with them and give them our feedback rather than just reading their quarterly report and never talking to them. And so we would hope that our managers get something from us as well as part of that equation, and that helps us get access to capacity in the better managers. So it is a challenge, but we have to keep working at it.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“No, in fact, probably the last philosophical belief is that we call it leveraging the best in the world. We actually don't manage any assets internally. So we use managers for all of our implementation. And we've probably got about 120 or so managers on the books at the moment and would like it not to grow too much more than that, just so that we have the bandwidth to keep on top of it and that we don't get over diversification. But the team here, so there's about 60 people in the investment team. A lot of them are former fund managers or asset consultants who have interacted with managers. And I'd like to think that we can go out and interact with our managers as peers in the marketplace. We know their job. We know what they do and we know what drives them. They've poached and gamekeeper. So we can have very sophisticated discussions with them. And rather than buying the venerable”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Hold almost no physical bonds. We don't have any concept of liability matching. We've only got a return target and bonds aren't paying all that well at the moment, so there doesn't seem to be a strong reason to hold them. But we do have some rates exposure as a defensive asset class.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Property and infrastructure between them are about 15% of the portfolio, and those strategies have been tilted away from the core assets at this point in the cycle. They have been there in the past and are more focused on the more skill-based shorter duration, higher manager activity type strategies. So they're higher risk than most asset INR property and infrastructure portfolios would be. is about 10%. That's been as high as well over 20% in the past and we've shrunk that as the opportunity set shrunk and the return for that particular risk has shrunk. We have about 15% in hedge funds and other alternatives as a diversifier and then we're holding about 15% in cash at the moment and that's for its option value. But we also have a series of overlays to give us currency exposure and duration.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Equity exposure overall is about 30% of the fund, and that's roughly about half developed market equities and a quarter H of emerging market and Australian equities. In Australia, we don't pay tax, we get some from sort of tax advantages under the Australian rules. And our mandate is in Australian dollars and to Australian inflation. So we'd always have an overweight to Australia, but it's a much smaller overweight actually than a lot of our local peer funds would have. because we're looking for diversification. Private equities are probably about 12% of the portfolio at the moment and about half of that is venture and growth equity. So we've tried to tilt that away from buyout strategies that we feel are very similar to equities in the exposure they give us and towards something diversifying.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a good question. So, the first thing I would say is, while I will answer the question, it's not as meaningful as it might be. It needs some discussion because we don't really think of asset classes.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Portfolio to target, for example, quality or value type opportunities, but we've chosen not to, for example, chase momentum strategies because we have a lot of momentum in the rest of the portfolio.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Quite similar. So, firstly, equities are our key lever in terms of how much risk we want in the portfolio, and we can dole that up and down relatively easily. From a portfolio construction point of view, for example, we have a significant overweight to emerging market equities when you just look at, for example, the MSCIL Countries Index. Why? Because we have very little emerging market exposure in private equity property infrastructure, hedge funds. And so from a total fund perspective, we think we need a bigger exposure because they're probably misnamed these days, but these economies are more than half of the global GDP are going to continue to grow faster than the developed markets or traditional markets, but are not as accessible in terms of the development of their financial markets. We also bring a factor in, and so we do invest.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“And nor do we try, but we're taking a three year plus view. If we thought something was going to happen for three years and then revert, we probably wouldn't move an infrastructure portfolio. But we know today that asset prices implied on those core assets are well in the single digits, probably low to mid single digits. And we just think there's a lot of risk around that. So the first thing you do is stop buying them. And because we're not setting top-down asset allocations, there's no need for the team to go and buy assets to fill a bucket. In fact, we'd encourage them to come back to the investment committee and say we think we should sell our assets and give this capital over to someone else who's got better opportunities. So all of our alignment and all of our culture is designed around those types of interaction.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“How often can you change a view like that? So if you're just talking about infrastructure real estate, they're fairly liquid assets. So rates could move meaningfully over a year or two, but it's not so easy to turn the portfolio”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're doing aged care development in the US at the moment because the demographics are such that there's just a definite need for more facilities in that space or infill housing in places where because of the impact of the financial crisis people stayed at home longer and the millennials are now moving out of home and need places to live near a university, near a hospital, near employment centres. Those sort of skill-based shorter duration strategies become quite attractive in this environment. They are riskier from a cash flow execution point of view, but from a valuation point of view, they've got a lot of buffer because the expected return is much, much higher probably in the teams.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's exactly right. So we start with And then the way we would translate that, for example, in property, in real estate, would be that no view is ever certain. We've got to be humble in our abilities. But let's say we thought it was. Then assets with long duration would be at risk because if we think interest rates are rising and that's not fully priced in or economic growth might roll over and that's not fully priced in or inflation might break higher than expectations and albeit that real estate might have some ability to pass that through or be limited by the capacity of the economy to carry it then actually your core long duration real estate assets should be seen as quite risky from evaluation point of view a bit like long bonds in that type of portfolio whereas shorter duration strategies that are more skill based for example”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“In other asset classes that come into it. And then, in terms of risk, I would say it's quite a qualitative process. So we debate the issues of the day, but today we're quite focused on the healthy economy in the US. However, that probably indicates a return to the normal business cycle, and that means that as interest rates rise slowly, eventually that will start to impact on what is still a reasonably indebted economy and slow economic activity. And usually markets will lead that impact. We've still got monetary policy that's accommodative, we've got fiscal stimulus happening, and so there's quite a bit of downside risk in the longer term. And then we're also looking at things like geopolitics, trade disputes, and things like that, which populist politics in general is usually detractive from economic growth and inflationary. And so their risks.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the first thing to make clear is we certainly don't believe that we can time markets. It's not an exercise in market timing. It's not a short-term strategy. We've got plenty of macro hedge funds that do that on our behalf, and we don't think we can do it better than them. But we do think if you draw a line today and look forward, it's possible to predict, for example, what is the implied equity risk premium, because we can have a view on long-term growth, on corporate margins, we can sort of work out what we think the earnings are going to be, we can take the long bond rate or some forecast beyond that and say disaggregate that and say, what is the implied equity risk premium? And that's actually a pretty good predictor of future returns over 10 years, so in terms of the expected return drivers, that's probably the main one. But obviously there's things like term premier and other things.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Into the taxpayer and the tolerance for bigger drawdowns over longer time frames could be tested and could potentially lead to poor decision making. So debate those metrics with the board from time to time, but we've got a very clear language and we have quite open conversations with the board about why we're doing certain things. So for example that discussion about the edge fundail protection strategy. We have that open conversation with the board. We're making this investment. We think it will probably not pay off in most scenarios. It will pay off when we really need it.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Need to have a very clear language that you can speak. And so with our board, they're all people with some experience in financial services. We've developed a language. The Future Fund mandate says maximize return in doing so don't take excessive risk, which is pretty high level. We do have a benchmark from the government of Inflation plus 4% to 5% over the long term that they've given us. But in its essence, The way the board has interpreted that is to say we should vary risk in the portfolio. It's not a set and for get strategy. So if risk is being rewarded, we should take more. And if risk is not being rewarded, we should take less at a point in time. And then secondly, we think about risk in terms of the cumulative drawdown over a three-year rolling period, because we think as a public fund, we've got a responsibility to the public.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“The third thing is being nimble and flexible, and that's really about being prepared to do something differently, not doing things the way they've always been done, understanding why you would do something, and being prepared to make the call and to take some risk. We're in the business of taking risk. We need to understand it, but we can't deliver returns unless we're willing to take risks.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so the view from the bottom up was these are great assets, they're a great opportunity, and it was only by talking to our economics team that we understood that there was a big risk of a financial crisis in Spain given the positioning of the banking system. And we could start to take that into account in how we thought about the valuation. Equally, our teams that are involved with airports and shopping centres and seeing companies repaying their credit obligations on time or not can inform the economics team about what's actually going on in the real world and help to influence their thinking about the opportunity set and the economic outlook. So we call that being joined up.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so that's the top down approach. The bottom up approach is one where the teams just go out and buy the best assets they can. And they might try to risk adjust the hurdle rates. That's quite nimble because you can adapt to the market. But the problem is there's no real concept of portfolio construction, certainly at the whole portfolio level. And so we try to bring those things together by having a small team of 60 investors all in one office here in Melbourne, Australia. And we can all sit in a room and debate things frequently, and we do. And more so the teams can work together so that the economics team can say, well, I'll give you a real example. When I was running infrastructure, we were looking at a toll road opportunity in Spain just after the financial crisis. And so the value of those assets had fallen very significantly as at all assets. But the Spanish economy at that point still looked reasonable.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“And we can start to look at the portfolio on a forward-looking basis. Typically, what funds do because they're very large and they are complex organisations is they then come up with a portfolio allocation. Maybe they've got a strategic asset allocation and they exercise a tilt away from that. And then they ask the sector teams to fill up those buckets to buy assets. The problem with that approach is the top down and the bottom up are very disconnected and the asset teams, which in many cases might even sit in another country. So the top down team, they don't understand the fund's macro view or the funds portfolio construction, the risks, the exposures. And in reality, those teams, if they're sophisticated, they can build a portfolio to match a desire. So a property portfolio doesn't have to be vanilla real estate. You could target certain types of property or exposure or the same in infrastructure or even equities.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“and they then optimize the portfolio using that data. And by design, that assumes that assets continue to behave in the future the way they behave in the past. But I don't think there's any reason to assume that. And I think that today there's reasons why that may not be the case. And so we try to have a forward-looking process. And quite a few funds do this today where we think of asset classes not so much as sectors, but through their factor contribution. So how much exposure to equity risk premium, credit risk premium, inflation, duration, illiquidity premium, those types of things. And we can then look forward using a scenario analysis and say, okay, in a stagflation, in a recession, in an emerging market slowdown or productivity boom, what would happen to those factors? And therefore the assets themselves, but also how would correlations change?”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“The second thing was we call it being joined up. And what we mean by that is most funds I would say they're quite backward looking in their portfolio construction. What I mean by that is they take their sort of CAPM theory and their main variance optimization and they look at historic data.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“In our case, we actually size them very big, or at least from their perspective very big. It might be, say, 20% of the total hedge fund book, because they're actually designed to pay off at a whole of fund level in those scenarios.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'll just give you one example there's many many examples but one very simple example is today we have a portfolio like like all of them really of our size which is very growthy and very exposed to equity risk premium and we know that in certain scenarios for example a big recession or a market sell-off that portfolio will not do so well and so positions that can hedge against that are very very valuable So we have a couple of hedge fund strategies that really are a sort of volatility traders or tail protection type mandotes. And if we had diversified hedge fund portfolio and if the person running that or the team running that were incentivized just based on the hedge fund performance, they may have those positions, but they would size them relatively small because in most scenarios we expect to lose money on them or at least not make very much.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source
“Let's look around the world at other large funds, many of whom are tremendously successful, but figure out what constrains them and how we can address that. And there are just a few simple ideas. One was to think about what many people today call total portfolio approach, but we called it one-team one portfolio. We're all in it together. We won't worry about diversifying individual asset class portfolios. We'll just do what's right for the whole portfolio. It's a very simple concept, but actually it's very hard to do in an existing organisation and we had the benefit of starting from scratch.”
2025-09-01 · Capital Allocators · CIO Greatest Hits: Sovereign Wealth Funds – Raphael Arndt (Australia Future Fund) · IDENTIFIED FROM THE TRANSCRIPT · source