EPF cited high market volatility and lower valuations across equity and fixed-income markets as reasons for the drop in returns.
"The financial year 2022 was marked by both slower global growth and high inflation rates, compounded by the tightening of monetary policies by major central banks to reel in inflationary pressure," the statement said.
"Fixed income markets did not fare well as bond indices posted negative returns for the year, largely attributed to elevated yields following continued U.S. Federal Reserve rate hikes. Geopolitical instability was also a major factor in driving market gyrations, with the Russian invasion of Ukraine causing a major dislocation in commodity prices, compounded by saber rattling between the U.S. and China," it said.
The fund had 47% allocated to fixed-income instruments, 42% allocated to equities, 7% to real estate and infrastructure, and 4% to money market instruments.
Equities contributed 55% of EPF's total gross income, led mainly by foreign-listed equities, which yielded a 9.3% return on investment in the portfolio. This was despite major global equity benchmarks falling more than 20% during the year.
"The EPF's diversification into foreign assets and currencies allowed it to realize additional gains with profits from non-Ringgit sources and added value to the retirement fund's overall return. As at December 2022, foreign investment made up about 36% of the EPF's investment assets and contributed 45% of the EPF's total gross investment income," the statement said.
In addition, EPF Chairman Tan Sri Ahmad Badri said that shares in some sectors performed better than others. For instance, "energy, plantation, financial services, and consumer staples, fared reasonably well compared to other sectors," he said. "The EPF's diversification strategy across different sectors and geographies has been effective in capitalizing on profit opportunities and generating returns."
Fixed income returned 4.4%, private equity made 13.7%, real assets earned 10.5% and money market instruments posted 3.5% returns, according to the statement.
The statement also acknowledged the difficulties the fund faced from pandemic-related withdrawals, which amounted to 145 billion ringgit in total since 2020.
"Managing the withdrawals was a difficult challenge for the fund, given the need to ensure sufficient liquidity. Even as the EPF successfully navigated through the situation, the cash outflow limited the EPF's ability to take advantage of investment and profit opportunities for the benefit of all members," the statement wrote.