Australia's Future Fund reported a modest 1.2% decline for a final quarter of 2018 marked by a plunge in global equity valuations.
The portfolio ended the year at A$147 billion ($104.4 billion), up 5.8% from the year before and 9.7%, annualized, over the past 10 years.
The sovereign wealth fund's executives in a briefing Monday said efforts over the past year to trim risk from the portfolio, to account for slowing momentum in the global economy, paid off in the latest quarter.
The portfolio performed the way its investment team had hoped, in diversifying exposures to make it less vulnerable to equity market sell-offs, said Peter Costello, the chair of the fund's board of guardians.
With continued risks such as U.S.-China trade tensions on the horizon, Future Fund remains positioned to outperform in downturns, albeit at the risk of underperforming should markets perform better than expected, Mr. Costello said.
Executives said the fund's allocations to private markets helped it weather the latest spike in volatility, even as they confirmed plans to trim some illiquid exposures to be able to respond nimbly if market conditions, as anticipated, become more challenging this year.
"In 2018 we commenced work to sell around A$5 billion of illiquid assets in order to prepare for potentially increased volatility and to increase portfolio flexibility," CEO David Neal said in a news release.
Despite those moves, Future Fund reported allocations to private markets as of Dec. 31 that were higher across the board from the year before.
Private equity, at 15.8% of the portfolio, was up from 12.1%; property climbed to 7.2% from 6.1%, and infrastructure and timberland, at 8.5%, were up from 7.7%.
In Monday's briefing Mr. Neal said those increased weightings partly reflected the U.S. dollar's strength in currency markets, which lifted the valuations of private equity, infrastructure and property valued in that currency.
But very strong returns for those investments helped as well. "Although we are attempting to trim ... values have been going up so quickly" that the weight of allocations has risen — a nice dilemma to be facing, Mr. Neal said.
Mr. Neal confirmed that Future Fund had sold some of its interest in London's Gatwick Airport, as well as some property holdings recently, and was "happy to have made those sales ... (as they) contribute to a more flexible portfolio for us." He declined to say how much of the A$5 billion target for trimming assets had been met.
Other big sovereign wealth funds with smaller allocations to alternatives suffered more during the latest quarter. For example, on Feb. 1, Japan's ¥150.7 trillion ($1.37 trillion) Government Pension Investment Fund, with roughly 50% of its portfolio in publicly listed stocks and only a fraction of 1% of its investments in private markets, reported a 9% decline for the December quarter.
As of Dec. 31, Future Fund's allocations to publicly listed equities stood at 29.4%, down from 31.8% at the close of the September quarter. Of that total, developed market equities suffered the biggest drop to 16.3% from 18%. Australian equities, meanwhile, fell to 5.8% from 6.5%, while emerging market exposures were steady at 7.3%.
The fund's allocations to hedge funds slipped to 14.6% from 15%, while holdings of debt securities rose to 10.1% from 8.8%. Cash, meanwhile, edged up to 14.5% from 14.4%.
