by John Kavanagh
Raphael Arndt has a message for private equity fund managers who might be planning to call on him with an investment proposition. He only wants to hear from managers who can demonstrate that they are helping their investee companies achieve better performance “in the new world”.
Arndt is the CIO of the Future Fund and in that role he oversees the management of $164 billion – $139 billion in the Future Fund and the balance in four other government funds. As a long-term investor, he is attracted to strategies that are not correlated to equity markets, especially now that global equity prices are high.
He has $20 billion invested in hedge funds and $17 billion in private equity and venture.
Speaking at the AVCJ Private Equity and Venture Forum in Sydney last week, Arndt said the appeal of private equity and venture was that it gave him access to small and medium businesses with strong growth prospects.
He likes PE and VC managers that have the expertise to help those businesses grow. “We are not interested in managers that rely on leverage to flip assets,” he said. “We like to see managers with specialist teams.”
A fundamental investment principle at the Future Fund is that the future will not be like the past. “Millenials, who have more spending power than Baby Boomers now, are different in the way they work and interact. Business models have to evolve,” he said.
“The investment industry is not immune from disruption. We like to see managers invest in their businesses, putting the right people in place to develop expertise that will add value, and building networks and ecosystems that will allow them to be more proactive.”
Arndt is putting his money where his mouth is. The Future Fund has made a substantial investment in new systems that give it better insights into its portfolio, such as real time exposures.
As an aside: last year, the Future Fund partnered with AVCAL to run a series of workshops for local managers. It brought some of the team from US venture capital firm Greenspring Associates out from California to work with local PE and VC managers on bringing their businesses up to best practice standards.
“This is an ongoing project. We will be bringing Greenspring here regularly” Arndt said.
“It is not good enough to keep doing what we have been doing for the past 20 years. The funds that are open to change are the ones that will do well.”
The Future Fund uses different implementation models for private equity and venture investment – fund of funds, general partners and co-investment. “We are not precious,” Arndt said.