Ralph Arndt, CIO of Australia’s Future Fund, an A$166 billion ($125.3 billion) sovereign wealth fund, sees hedge fund investment as a “necessary tool to help reduce risk while providing uncorrelated returns,” according to a recent article in Chief Investment Officer.
Arndt has so much faith in his strategy, the article reports, that he has more than 15% of the portfolio in hedge funds, exposure which he says serves to reduce risk, “and in particular to provide returns in market environments involving prolonged periods of losses in equity markets.” The exposure, however, does not conflict with the fund’s mandate to earn a return of at least 4% above inflation over the long term, according to the article.
Arndt believes that the bad press received by hedge funds in recent years is the product of a dated stereotype. “The ‘have a hunch, bet a bunch’ hedge fund manager is a relic of a bygone era, largely cleaned out by the GFC [great financial crisis] which exposed strategies which use high leverage and poor risk controls. These have been replaced by institutional-quality investment processes.”
The article provides some detail regarding Arndt’s investing strategies which, he says, allows the fund to provide “diversifying returns and maintain portfolio flexibility in the event of a significant equity market drawdown.” As of the end of March, the article reports the Future Fund earned a return of 8.5% per year over the last 10 years (compared to a target benchmark return of 6.7% per year during the same period).
The hedge fund industry, according to Arndt, has “evolved and improved, and features a new breed of managers that are different from their predecessors.”