The Wellcome Trust, Britain’s biggest charity, warned that a potential slowdown in global financial markets mean challenging times for its portfolio, as it unveiled a 6.9% return for the year to 30 September 2019, compared with 13.4% for the previous year.
As last year, private equity – which now forms 27.7% of the £26.8bn (€31.5bn) portfolio – was the best performer, returning 15.6%.
Within this class, venture was not only the single biggest segment – 11.8% of Wellcome’s overall portfolio – but also gave the best results, returning 27%.
Multi-asset partnerships and private co-investments also performed well, with returns of 24.1% and 14.5%, respectively.
Public equities – 50.5% of Wellcome’s portfolio – made a 6.8% return, lagging behind the 7.9% sterling return from the MSCI AC World index.
Wellcome said that sterling weakness was a significant contributor to performance.
Overall, the latest investment return brought the trust’s annualised return over five years to 12.3%, and to 12% a year over 10 years.
Nick Moakes, chief investment officer and managing partner of Wellcome’s investment division, said: “The portfolio has performed well in challenging macro circumstances. Interest rate cuts by the Federal Reserve Bank may have helped prolong the economic cycle, but this has not changed our view that we need to prepare for lower returns than we have enjoyed over the past decade.”
In the report, Wellcome Trust’s trustees also made observations on the financial implications of recent geopolitical shifts throughout the world.
They said: “After a long period when owners of capital, like Wellcome, have been the beneficiaries of globalisation, of technological disruption and of ultra-accommodative monetary policy, societal attitudes are shifting. Political populism is at least partly a reaction to stagnant real wages in the West.”
The trustees warned that three decades of structurally rising margins enjoyed by the corporate sector in much of the developed world would not go on indefinitely.
“However, companies that maintain their societal licence to operate are likely to prosper best over the long-term, which is why we put a lot of emphasis on owning companies with a positive corporate culture,” they added.
Meanwhile hedge funds – 9.5% of Wellcome’s portfolio – returned 9.2% for the year to end-September, but property – 8.1% of total assets – made only 1.5%. Wellcome said this asset class, which is overwhelmingly located in the UK, had been affected by sentiment towards Brexit.
But its investment in student accommodation business IQ continued to perform well.