Global charitable foundation Wellcome Trust's investment portfolio returned 1.7% over the year ended Sept. 30, amid challenging market and economic conditions.
The London-based fund, which ended its fiscal year with total assets of £37.8 billion ($41.3 billion) — down 1% over the year — gained 34.5% for the prior year ended Sept. 30, 2021.
In an introduction to its latest annual report, chairwoman Julia Gillard warned that "the market environment is unlikely to get easier soon." However, she said falling asset prices may present opportunities "to acquire promising long-term investments at good value," while executives also expect inflation to fall.
The charitable foundation's annualized returns were 15.4% over three years, 13.2% over five years and 14.1% over 10 years ended Sept. 30.
Executives had "prepared for a more difficult environment" by reducing its equities exposure and holding more cash, the annual report said. Holding most of its assets in non-sterling assets also benefited the fund, due to sterling's depreciation by more than 17% vs. the dollar. As of Sept. 30, the fund's currency exposure was 54% U.S. dollar, 23.9% pound sterling, 12.2% all Asia currencies, 8.5% Europe-based currencies, 1.2% currencies with significant exposure to commodities and natural resource industries, and 0.2% other currencies.
In terms of asset allocation, the fund ended the fiscal year with 37.1% private equity, 34.5% equities, 12.4% hedge funds, 8.2% cash and bonds, and 7.8% real estate.
The private equity portfolio gained 7.7% for the year ended Sept. 30, compared with a 72.6% gain for the previous year, the report said. However, the £14.8 billion portfolio "has not escaped completely unscathed from the drawdowns in major liquid asset classes, as valuations have started to slide from their peaks," the report said, highlighting the lag in valuations vs. public equities.
The equities portfolio lost 12.7%, compared with a 16.5% gain for the previous year. The hedge fund portfolio "did its job of protecting value and delivered a positive return," at 5.7%, compared with a gain of 11.2% for the previous year, the report said.
The real estate portfolio returned 11%, vs. 16.1% for the year ended Sept. 30, 2021.
Bond returns were not available.
Looking forward, executives "are watching for an opportunity to deploy capital back into public equities, which (at the right price) should be the default liquid asset class for long-term, unconstrained investors like Wellcome." The report added that executives are aware of the impact of inflation on cash holdings, but "remain content to retain the optionality of a higher-than-normal cash balance, especially as it seems likely that distributions from PE will remain subdued for the foreseeable future."
For 2023, Wellcome will be adding a new role to its executive leadership team, taking responsibility for equity, diversity and inclusion. The decision relates to Wellcome being "rightly criticized this year for lack of progress on our anti-racism commitments," Ms. Gillard wrote in the report.
Wellcome's board is also searching for a successor to Director Jeremy Farrar, who will step down in February. The job title has been changed to CEO from director, which "reflects Wellcome's more global role and the intention to keep sharpening focus on health impact and public benefit from our mission," Ms. Gillard said. Chief Operating Officer Paul Schreier will become interim CEO until a permanent replacement is named.