GIC boosts PE exposure to bolster returns

The Singapore sovereign wealth fund said it is set to increase its private equity holdings to as much as 15% of its portfolio, as it prepares for a period of uncertainty and low returns.

The Government of Singapore Investment Corporation is looking to increase its exposure to private equity and real estate to as much as 15 percent of its over $100 billion portfolio, as it seeks higher returns in the current low return environment, the investor told Private Equity International.

GIC revealed on Monday that its rolling 20-year returns dropped for the third consecutive year to 3.7 percent, as it warned that global economic and political uncertainty, high valuations and low economic growth may weaken future returns.

A GIC spokesperson told PEI the sovereign wealth fund expressed a desire to increase its exposure to the asset class via direct and co-investments in order to boost low returns.

However, the spokesperson highlighted that asset prices continue to be driven up by the huge amounts of dry powder private equity funds and other investors looking to invest in the space. The spokesperson said GIC is “facing much competition” with global sovereign wealth funds and pension funds, that likewise want to use private markets to bolster returns.

“Private equity is one of those asset classes where at the end of the day, price discipline matters most,” she said. “We hope the industry will be disciplined and other investors will be disciplined, but we cannot control that. As a long-term value investor, we have to ensure we are as disciplined as possible.”

On Monday, the $153 billion Swedish pension system said it is considering increasing its exposure to alternatives to as much as 40 percent of its total assets, and last week the Abu Dhabi Investment Authority, with about $830 billion of assets, reported it increased its exposure to direct private equity investments in the last year, particularly in emerging markets such as China and India.

Meanwhile, Australia’s superannuation fund industry, with A$2.3 trillion ($1.8 trillion; €1.5 trillion) under management, is also looking to ramp up direct and overseas private equity investments in response to the industry’s heightened attention on fees.

GIC has been investing in private equity since 1982 but remains underinvested in the asset class, with just a 9 percent allocation as of end-March 2017, against a long-term policy of 11 percent to 15 percent.

The bulk of its investments are in North America and Europe, as well as emerging markets in Asia. GIC’s private equity direct investments cut across multiple sectors with a focus on financial services, business services, consumer, healthcare and TMT.

Among its recent direct deals include electronic trading firm Virtu Financial, Shanghai-based electric carmaker NextEV, as well as a $500 million stake in Alibaba Group.