Liquid strategies include public equity, fixed income and alternative public market strategies.
Our public equity exposure is designed to complement our private equity strategy and generate return using liquid market instruments. Public equity markets had a challenging year in 2018, with major markets posting significant negative returns on the back of moderating global growth, rising interest rates and tighter global liquidity conditions.
Overall, the public equity portfolio generated a net return of -11.4% in 2018.
Our fixed-income assets hedge the interest rate sensitivity of our liabilities and serve as the main source of liquidity for the Plan. In addition, fixed income provides diversification benefits for the portfolio as it generally performs well in environments when riskier assets produce low or negative returns.
Overall, the fixed income portfolio generated a net return of -0.4% in 2018, as a result of rising interest rates and widening credit spreads.
Alternative Public Market Strategies
We invest in customized alternative public market strategies to access a broader and more diversified set of risk premia and alpha streams. These strategies are less correlated with traditional market returns and make our Total Fund portfolio more resilient to different economic and market environments.
Overall, the alternative public market strategies portfolio generated a net return of -5.4% in 2018 dragged down by alternative risk premia and multi-asset strategies, consistent with weak returns delivered by market risk premia in 2018.
Currency, Overlay and Other
The remainder of our public markets’ exposure is comprised of our foreign currency exposures, overlay portfolio activity, credit, gold, cash and money market, and other capital markets activities. We hedge most of our foreign currency exposures, as fluctuations in exchange rates can significantly impact the volatility of a global investment portfolio. However, we do maintain some exposure to currencies that can act as a safe-haven in times of market stress and a small amount of emerging market currencies. We also have a portfolio which focuses on risk mitigation at the Total Fund level, through hedges and other diversification strategies. Collectively, our foreign currency exposure and overlay strategies contributed 0.2% to Total Fund returns in 2018. Other items in this category made only marginal contributions to Total Fund returns in 2018.