The Future Fund chair Peter Costello has warned of challenging times ahead for investors as interest rates rise around the world, including in Australia.
Releasing a portfolio update, Mr Costello said the Future Fund stood at a record $204 billion at the end of 2021, after posting a return of 19.1 per cent for the year and substantially above a target of 7.5 per cent.
The fund - set up in 2006 to cover future superannuation liabilities of public servants - showed a 10-year return of 10.8 per cent.
This was well above the 6.2 per cent target, the consumer price index plus four to five per cent.
"It has been an exceptionally good year," Mr Costello, the former Liberal treasurer who created the Future Fund, told reporters.
"The Future Fund profited from the fact that monetary policy was very expansionary both in terms of interest rates and in terms of quantitative easing and that increased asset prices very significantly."
However he said looking ahead, inflation and interest rates are rising and quantitative easing will be coming to an end, which has already seen an adjustment in asset prices on stock exchanges around the world in January.
"We would expect you'll see a lot of adjustment, a lot of recalibration as a consequence of rising interest rates and the end of what were exceptionally easy monetary conditions over the year ahead," Mr Costello said.
"Which means we have to position for challenging times if we are to make sure that we can confront the outlook over the next year or two, which will be a lot more challenging for investors."
He noted investment returns have added more than $143 billion to the $60.5 billion originally contributed by the federal government when the fund was established in 2006.
"It has had no additional capital since formation," Mr Costello said.
He said the fund has been carefully positioned to successfully navigate the challenges thrown up by the COVID-19 pandemic, and it has delivered exceptional returns.
In total the fund manages assets worth $252 billion.
This also includes the Medical Research Future Fund, the Aboriginal and Torres Strait Islander Land and Sea Future Fund, the Future Drought Fund, the Emergency Response Fund and the DisabilityCare Australia Fund.
