GIC’s PE portfolio outperforms public equities

The Singaporean SWF continues to grow its private equity portfolio, reaching 9% of its AUM this March

The $320 billion Singaporean sovereign wealth fund, the Government of Singapore Investment Corporation, continues to increase its allocation to private equity as its long-term results show the asset class has outperformed public equities.

“Investing in private equity [is] a higher-risk activity, but the strategy has worked well for GIC so far. Returns from the private equity asset class since its introduction into the GIC Portfolio have exceeded returns from public equities,” the firm said in a feature article on private equity in its 2014 annual report.

Specific returns for each asset class were not disclosed, however private equity was placed as GIC’s highest risk, but highest expected returning, asset class, just above emerging market equities – where the Asian LP giant is also increasing its exposure.

GIC has increased its allocation to private equity, both developed and emerging markets, to 9 percent as of 31 March 2014 from 8 percent at the same date last year. Its target allocation to private equity, set in March 2013, is between 11 and 15 percent, with a 9 to 13 percent allocation to real estate.

Equities, nominal bonds and cash still represent the largest portion of both GIC’s portfolio and target allocation.

Over the last decade, North America has made up the bulk of GIC’s investment in private equity, followed by Europe. Asia represents less than a third of the Singaporean investor’s private equity portfolio.

Moreover, GIC is driven mostly by buyout opportunities of varying sizes, with almost three-quarters of its private equity investments placed in small-, mid-, and large-cap buyout funds and direct deals over the past 10 years.

GIC highlighted the key drivers of private equity performance as strong alignment of interest between investors and company management, operational improvements to add value to companies, ability to make strategic decisions without pressure of short-term share price concerns and the appropriate use of leverage to increase return on equity.

Other highlights in the 2013-2014 report included the opening of its 10th office in Sao Paulo, Brazil, concordant with its strategy to focus more on emerging market equities.

The firm also appointed a new board member S Dhanabalan, effective on 1 August 2014, as well as a new chief operating officer Goh Kok Huat in a newly created role. Huat is also president of GIC real estate and his new appointment was effective from 1 April this year.

GIC's total portfolio 20-year annualised real rate of return for the year ending 31 March 2014 was 4.1 percent, compared to 4 percent the previous year. In US dollar nominal terms, it generated an annualised return of 6.5 percent over the same 20 years, equating to each $100 invested with GIC in 1994 growing to $352 today, according to the firm.