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GIC reports 4% returns, reveals new strategy

The Singaporean sovereign wealth fund reported a slight increase in longterm returns and provided details of its new investment strategy.

GIC reported an annualised 20-year real rate of return of 4 percent to 31 March 2013, up from 3.9 percent the previous year, according to a statement from the Singaporean sovereign wealth fund. 

In US dollar terms, GIC’s portfolio had annualised nominal rates of return of 2.6 percent over five years, 8.8 percent over 10 years and 6.5 percent over 20 years, the report said.

The 10-year results beat the performance of US endowment funds, which on average returned 6.2 percent in US dollar terms over the 10-year period ended June 2012, according to GIC.

The new framework aims to take GIC to its third stage of investing

GIC investment report

GIC has $247 billion in assets under management, according to PEI’s Research & Analytics division.

The category of private equity and infrastructure accounts for 11 percent of the investment portfolio, the same percentage as the previous year.

The firm said it had significantly reduced exposure to bonds and cash over the last decade while increasing the exposure to public equities and alternative asset classes. 

“GIC’s performance over the period had been helped by its investments in public emerging markets and alternative asset classes,” the report said

In April, GIC implemented a new three-pronged investment framework aimed at driving longterm performance. A “reference portfolio” made up of 65 percent global equities and 35 percent global bonds (“65:35”) sets the risk limits in its longterm investment strategies.

The active portfolio [component] was constructed to allow us to take part in strategies that bring us alpha

GIC spokeswoman

Another component is GIC’s revised “policy portfolio”, which has been pared down to six core asset classes from thirteen: developed market equities, emerging market equities, nominal bonds and cash, inflation-linked bonds, private equity and real estate.

In the new policy portfolio, private equity will account for 11-15 percent and real estate 9-13 percent.

In addition, an “active portfolio” will compete alongside the policy portfolio through opportunistic investments across all asset classes, while staying within the risk parameters set by the 65:35 reference portfolio.

“The active portfolio was constructed to allow us to take part in strategies that bring us alpha,” according to a spokeswoman from GIC.  

The new framework resulted after GIC undertook a review for only the second time since its inception in 1981. It aims to take the sovereign wealth fund to its third stage of investing, the report said. 

GIC started in the early 1980s with a conservative approach, then moved to an endowment strategy in the 2000s that took on a little more risk and emphasised liquidity. The latest implementation is intended to focus on longterm drivers of returns, according to the firm.