Peter Costello (left) and Raphael Arndt

The $196 billion Future Fund posted a 3.7 per cent loss in 2022 as rising inflation, higher interest rates and sharp falls in asset values pushed Australia’s sovereign wealth fund’s financial performance in the red.

In a portfolio update as of 31 December 2022 announced on Wednesday, the Future Fund posted a return of 9.1 per cent against a target of 6.7 per cent over 10 years.

Peter Costello, chair of the Future Fund Board of Guardians warned challenging market conditions will continue to negatively impact investment returns.

“During 2022, developed economies were hit with serious inflation of a scale not seen for 30 years,” he said in a press release.

“This brought to an end a long period of monetary and fiscal stimulus. Central banks’ response of rapidly increasing official interest rates to control inflation had a significant impact, driving down asset prices and investment markets.

“We expect that real returns to investors, with the context of significant inflation, will be substantially below the experience of recent years.”

Alternatives, PE top allocations

The Future Fund’s largest allocation was to alternatives making up 17 per cent of the total portfolio or $33.4 billion. The second highest allocation was to private equity comprising 16.9 per cent or $33.2 billion with 15.9 per cent allocated to global equities in developed markets, its third largest asset class.

Future Fund chief executive Raphael Arndt said the portfolio continued to be positioned towards the middle of the range of risk settings.

“Our focus remains on protecting the portfolio from a range of scenarios, including sticky inflation leading to prolonged higher rates and the risk of a global recession, while seeking opportunities to generate long-term returns,” he said.

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