In its annual report, the Government of Singapore Investment Corporation pointed to investor complacency as pricing remains high despite heightened macroeconomic and geopolitical uncertainty.
The report highlighted Brexit, the US Presidential elections, and heightened geopolitical tensions as uncertainties that do not seem to have been priced in to the market and warned that standard risk models are insufficient in the current market environment.
The sovereign wealth fund's annualised 20-year real rate of return as of end-March 2017 dipped to 3.7 percent, from 4 percent in 2016 and 4.9 percent in 2015. The investor does not disclose annual performance figures and the performance of individual asset classes and only reports averaged returns over a 20-year rolling period.
“As a long-term value investor, we remain cautious and recognise that to generate good real returns over time, we have to be prepared for periods of underperformance relative to the market indices, some even for a stretch of several years,” commented Lim Chow Kiat, chief executive of GIC.
GIC, which manages over $100 billion of assets, expects returns of around 1 percent to 2 percent in the coming decade as valuations remain high across asset classes and interest rates are expected to increase over time.
The investor is, however, more optimistic about the short-term with signs of strengthening industrial production, trade and labour market, and improved business and consumer sentiment. Macro issues such as high debt levels, demographic headwinds and slow productivity growth remain.
GIC’s asset and geographical mix remains broadly unchanged from a year ago. Its private equity exposure accounts for 9 percent of its portfolio, while real estate comprises 7 percent, inflation-linked bonds at 5 percent, emerging market equities at 17 percent, and developed market equities at 27 percent. Nominal bonds and cash make up the largest share of GIC’s asset exposure at 35 percent.
GIC, which has a long-term allocation of between 11 percent to 15 percent for private equity, was an active direct investor in 2016, taking minority equity positions and providing mezzanine financing in buyouts.
Notable investments include a $2.6 billion deal with Silver Lake Partners for Ancestry.com, the acquisition of location services company HERE together with Chinese tech giant Tencent, and the $265 million takeover of Jakarta-based cinema operator PT Nusantara Sejahtera Raya.
Earlier this month, the firm picked up stakes in BC Partners-owned Mergermarket Group and Nordic software company Visma.
The firm has invested in over 100 fund managers globally including CVC Capital Partners, MBK Partners, EQT and The Carlyle Group, according to PEI data.