Future Fund, Melbourne, reported a 3.4% return for the first quarter of the year as assets rose to A$202.8 billion ($135.8 billion).
Total funds under management, which includes other funds such as the Medical Research Future Fund, Disaster Ready Fund and DisabilityCare Australia Fund, rose above A$250 billion for the first time since December 2021.
The results were an improvement from a year ago. The first quarter of 2022 saw a 1.5% loss and total funds under management fall to A$249 billion.
For the 2022 calendar year, the sovereign wealth fund posted a 3.7% loss although it managed to eke out a positive 0.9% return for the second half of the year.
Quarter-over-quarter, the fund adjusted its asset allocation to favor developed market equities (17% from 15.9%), while private equity was reduced to 16.4% from 16.9% and cash to 10.6% from 11.8%.
Its shift toward alternatives such as hedge funds has slowed, with the allocation rising 10 basis points to 17.1% quarter-over-quarter. Comparatively, allocation to those alternatives was 15.2% in the first quarter of 2022.
"Recent events have confirmed that the changes we anticipated in our recent position papers continue to unfold across economies and investment markets," CEO Raphael Arndt said in a statement.
"The Future Fund portfolio is positioned below neutral risk settings. We are making continuing changes to the portfolio towards investments that rely on investor skill rather than market risk, reflecting our belief that this approach will be better rewarded in an environment where higher inflation and rates make market returns less certain," he said.
He added that the risk of a stagflationary environment is rising and that the fund's focus remains on protecting the portfolio from a range of scenarios such as sticky inflation, prolonged higher rates and recession risks, while seeking opportunities to generate long-term returns.
A spokesman declined to comment further.