Australia's sovereign wealth fund, Future Fund, posted a 0.9% return for the second half of 2022, but a 3.7% loss for the calendar year 2022.
"It was a pretty tough time in investment markets," CEO Raphael Arndt said during a news conference on Wednesday. "Global equities were down the calendar year about 18%. The bond index was down about 10%. And of course there's inflation, which is a reason that central banks are raising rates to try to counteract that and that's obviously flowed through to asset values, both equities and bonds."
The fund's performance fell short of its 11.8% target return for the year, which was exceptionally high amid elevated inflation. Its investment mandate target return is stipulated at 4%-5% above Australia's consumer price index, which was 7.8% for the year, compared to 3.5% for 2021.
Comparatively, the fund posted 19.1% returns against a 7.5% target in 2021.
In 2022, funds under management reached A$243 billion ($165 billion), down 3.6% compared the previous year.
Future Fund also made notable adjustments to its portfolio during the year. Most significantly, allocations to alternatives were raised by 3 percentage points to 17%.
"In terms of alternatives, it's quite hard to find defensive assets in this market, because we don't think policies are all that defensive when we think inflation will be sticky and interest rates a little unpredictable... So we're looking for hedge funds strategy that can perform in down markets. Basically, macro hedge fund strategies," Mr. Arndt said in a phone interview.
He declined to provide returns for each asset class but said that the equities portion of the portfolio outperformed the market because of the team's value tilting strategy and the "hedge fund portfolio was quite a strong, positive performer in the context of the market environment."
Future Fund executives also increased exposure to other asset classes, including infrastructure and timberland, which rose to 9.3% from 8%; Australian equities, which increased to 8.6% from 7.6%; and debt securities, which rose to 8.2% from 7%.
"The equities change is a (result) of increased risk level," Mr. Arndt said. "The Australian market has obviously outperformed the other equities markets."
The allocation to emerging markets equities was lowered to 5.7% from 7.7%, as was cash, to 11.8% from 16.8%.
Future Fund's exposure to developed market equities, private equity and real estate held steady at around 15.9% (15.7% in 2021), 16.9% (16.8% in 2021) and 6.5% (unchanged from 2021), respectively.