Australia's sovereign wealth fund, the Future Fund, is looking to buy small cap equities for the first time as traditional investments like blue chip firms and real estate are no longer safe, the CEO said on Thursday.
Raphael Arndt said investments like office buildings or shopping centres offer less safety, and a large cap company could be split up, regulated or its markets disrupted.
"There are no set-and-forget investments any more," he said at the AFR Alpha Live 2023 conference in Sydney.
"Markets are constantly changing and we must evolve our strategy in response. For example, changes in domestic markets have made small cap equities attractive to us for the first time and we have commenced a new program to invest in them in recent months," Arndt added.
The roughly A$250 billion ($165.23 billion) fund reported a negative return in calendar 2022, saying the response by central banks to high inflation by rapidly raising interest rates drove down asset prices and investment markets. Read full story
The fund has also flagged that it would raise its exposure to gold, commodities, private equity and infrastructure, warning the future will echo the low-growth, high-inflation era of the 1970s.
Ardnt said inflation is expected to remain high with stagflation -- an inflationary world with low economic growth -- becoming a major issue.
"The big issue is a stagflation...what can we do in that world? We think commodity exposure, gold and other inflation pass-through assets are quite attractive at the moment,” Arndt said.
Ardnt said whether or not interests rates have peaked is an ongoing debate but bond markets are pricing in a recession.
“Bonds are more attractive than they have been," he added.