Australia's Future Fund loses private equity team

Tim Burroughs, AVCJ
03 December 2018

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Three members of the four-person private equity team at Australia's Future Fund – including PE head Steve Byrom – have departed to set up their own consulting firm that will advise global institutional investors looking to build exposure to the asset class.

Byrom, David Simons and Jasmina Osmanovic left the A$145.8bn ($107bn) sovereign wealth fund last week, according to sources familiar with the situation. Byrom had been with the group since 2007, while Simons and Osmanovic joined in 2008 and 2013, respectively. They are expected to move towards a formal launch of the consulting business, known as Potentum Partners, next month. The fourth member of the Future Fund PE team is also set to leave but for a separate destination.

Potentum is already in talks with seed backers – chiefly the founders of global PE and VC firms – with a view to raising capital to cover initial operating costs. The plan is to target large institutional investors from around the world that want to build private equity programmes like the one the team put together at Future Fund, with an emphasis on venture capital, growth equity and co-investment.

Outsourced chief investment office (OCIO) arrangements have become a common feature of the US institutional landscape over the last 10 years, with various spin-out teams from endowments offering to bring endowment-style exposure to groups that would not be able to manage it on their own. Potentum will likely take a similar approach, using separate account mandates to help LPs build venture- and growth-equity-focused portfolios or launch venture co-investment programmes.

As of June, Future Fund had A$20.6bn invested in PE, or 14% of overall assets. Its invested plus committed capital stood at A$27.5bn across 31 GP relationships. Of the A$4.3bn in capital called over the preceding 12 months, 36% was for VC and growth equity, 27% for co-investments, and 37% for buyouts. Meanwhile, VC and growth equity featured prominently in distributions, accounting for 42% of the A$2.6bn received, compared with 6% for co-investment and 37% from buyouts.

Speaking at the AVCJ Australian & New Zealand Forum in March, CIO Raphael Arndt said that A$8bn of the PE portfolio – which was then worth A$17bn – was in venture capital and small business. There was up to A$3bn in venture capital alone, most of it invested in or alongside US managers. Future Fund subsequently made its first VC commitment in Australia, backing Blackbird Ventures' third fund.

In an interview with AVCJ in July, Arndt shed some light on the extent of the group's venture co-investment programme, which at the time amounted to more than $1bn across 40 deals. "While we do venture co-investment, we have been careful to stay at the early stages of growth, or we focus on unusual situations where we might already have exposure to the company so it's not a fully open funding round," he said.

Future Fund achieved a return of 8.7% per annum for the 10 years ending in June 2018, exceeding the benchmark of 6.6%. The return on the private equity programme alone is said to be 17.3%.