It was late February 2020 when CIO Raphael Arndt rang the Fund’s Head of Portfolio Strategy, Sue Brake, with a question.

“What does the portfolio look like if two per cent of the world dies?” 

The first COVID-19 cases had begun appearing in China and had quickly spread to nearby countries. It was still weeks before the World Health Organization would declare the spread a pandemic, but Arndt asked the team to stop their usual activities and focus solely on assessing the situation over the next week. 

Brake took an unusual approach: she prepared a ‘pre-mortem’ document, an exercise to try and predict the worst-case pandemic outcomes and to shake the team out of an incremental analysis. 

“It gets you out of starting where you are now and projecting into the future,” she says. “It’s like it’s already happened, so that you can un-anchor and start to think about what this means. So we put everyone into groups and they read it on the spot and then responded.” 

This hypothetical narrative would prove eerily accurate as the world economy was effectively shut down just weeks later to limit the spread of the virus. The investment team’s answers to three key questions shaped much of its initial response: 

01 What happened to the economy/industries? 

02 What are the work implications? 

03 What are your regrets? 

Excerpts from the COVID-19 pre-mortem 

The novel coronavirus (COVID-19) has continued to spread across the globe since it first emerged six months ago in Wuhan, China. The number of officially confirmed infections stands at 700 million globally with more than 10 million deaths and an implied fatality rate close to 1.5%. 

There are now uncontrolled clusters of the virus in the developing world, but also in parts of Europe and the US. Australia initially benefitted from warmer weather and the early adoption of restrictive border controls, but eventually succumbed to the pandemic. 

Future Fund Management Agency Melbourne office.

Future Fund Management Agency Melbourne office.

EEE – a common language 

The Future Fund’s primary way to assess its portfolio’s overall risk exposure is the Equivalent Equity Exposure (EEE) metric, which proved crucial during the COVID-19 crisis. 

“Having this EEE metric was a really easy way to describe the portfolio that everyone understood,” Arndt says. “That was really important because it allowed us to have those conversations in a crisis under intense pressure using a common language. Everyone understood what the intention was, even though the portfolio was complex.” 

Seven investment phases

The Future Fund has been managed through seven distinct phases: 

  1. The slow build of the portfolio, which was delayed because of the Global Financial Crisis. 
  2. Portfolio risk exposure was increased as extraordinary and globally coordinated economic policies were implemented to fight the crisis. 
  3. Risk levels were raised further as the European crisis subsided and the President of the ECB committed to do ‘whatever it takes’. 
  4. Portfolio risk was gradually reduced as expected market returns declined. 
  5. Risk levels were increased as economic growth and corporate earnings picked up and central banks continued supporting their economies. 
  6. Risk levels were reduced reflecting the elevated risk environment flowing from the COVID-19 pandemic and policy response. 
  7. The Fund’s risk levels were increased in the wake of the pandemic, which has accelerated a number of investment and economic trends. 

Future Fund Equivalent Equity Exposure since inception 

The graph shows a primary metric that the Future Fund uses to understand and manage the broad market risk exposure called the Equivalent Equity Exposure (EEE).  The X axis shows each year since the Fund’s inception and the Y axis shows the EEE on a scale of 1 to 100. The graph shows the range within which the Fund is expected to operate most of the time, which is currently at 55-65.

Paradigm shifts shaping the investment order 

The COVID-19 pandemic has catalysed changes across markets, economies and populations that will prompt investors to reconsider their portfolios. 



The free movement of goods and services, investment, and people has slowed and in significant cases, reversed. Tensions between the world’s two largest economies grow.



Countries have reasserted their national interest, controls over national laws and domestic focus in preference to an open international system. National economic policies have moved towards greater state intervention and controls.


Technological breakthrough and disruption

Technological innovation has allowed firms to develop operating models based on intangible assets, such as data and software platforms. This has led to the rise of digital conglomerates. Innovation advantages have led to disruption and dispersion within industries.



Many developed markets have relied on high levels of migration to counter an ageing population. Wealth inequality between generations is growing due to asset price inflation.


Climate change

Physical climate risk has become more severe over time. Companies with carbon-intensive operations and value chains are potentially vulnerable to market repricing, while renewable energy has become more cost competitive.


Challenges to corporate earnings

Since 1990, businesses have been capturing a rising share of total economic income driven by productivity improvements from intangible assets; capital-friendly tax arrangements; restructuring; offshoring and automation. If these drivers end (perhaps because of deglobalisation and populism), investors may see downward pressure on earnings.


Changed inflationary regime

Developed market economies have experienced disinflation over the past four decades but the forces that have brought inflation under control have ebbed or are now in reverse.


Fiscal-monetary coordination

Independent monetary policy is a recent paradigm and was only introduced legislatively in the 20th century. In the aftermath of the financial crisis, institutional independence has been eroded through the introduction of measures such as quantitative easing to induce or support fiscal spending. The pandemic has further accelerated this shift.


Change in fair values

As monetary policy reaches its limits and technological disruption provides scale with its low capital expenditure requirements, the traditional economic cycle is under threat and traditional metrics for assessing fair value are being challenged.


Decline of sovereign bond duration in portfolio construction

Government bonds have been the defensive anchor of investment portfolios for over 30 years. Nominal bond yields are now significantly lower so the scope for bonds to pay off is reduced. If inflation begins to rise the bond-equity correlation may prove much less beneficial going forward.

Past meets future with Telstra InfraCo Towers deal

The Future Fund’s decision to acquire almost half of Telstra’s network of mobile tower sites as part of a consortium in June 2021 was underpinned by its unique place in Australia’s investment landscape. 

“This was an example of one of our comparative advantages as a respected, long-term investor,” says Future Fund Chief Investment Officer, Sue Brake. “We approached them about whether they would think about selling it to us as a specific sale, and they were interested, much to our pleasure and surprise.” 

Image courtesy of Telstra. 

Remote tower