Future Fund leads push into high-grade corporate debt
The Future Fund has doubled to $1 billion its exposure to domestic corporate debt over the past year, as returns on offer in the at-times risky asset class hit their highest level in 15 years.
Chief executive Raphael Arndt said the $200 billion sovereign wealth fund had also lifted its broader exposure to high-grade debt “materially” into the billions, echoing a move by other large institutional investors to take advantage of rising global interest rates.
Future Fund CEO Raphael Arndt at the annual superannuation lending roundtable in Sydney. Oscar Colman
“We’ve quite materially increased our exposure to investment grade credit,” Dr Arndt told the annual superannuation lending roundtable hosted by Visy’s Anthony Pratt and The Australian Financial Review.
“Where it’s trading now at a 7 to 9 per cent yield is the highest it has been since the financial crisis, and you certainly cannot say that for equities. So on a risk-adjusted basis we think that’s attractive and has created an opportunity.”
Corporate debt can be in the form of a bond that trades in the market or a direct loan. Investors make money investing in corporate debt by earning an interest rate, typically reflected as a spread over the risk-free bond rate. The higher the perceived risk, the higher the spread charged by the investor.
As bond yields returned to historically normal levels, former prime minister, and the so-called father of superannuation, Paul Keating said the case for fixed-income investments was strong.
“There is now a much stronger economic case for super funds to invest in debt – hence there is a role of the funds [to provide debt] in all forms including corporate debt,” he said at the event on Wednesday.
Mr Keating said the shift he
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