Singapore’s GIC sees lower returns in the next decade

The $100bn state fund is bracing for a difficult investment environment, and said its prospects for returns on assets are ‘not as good as previously seen in the 1980s to the 2000s’.

Singapore’s sovereign wealth fund GIC posted a 4 percent annualised real return over 20 years ending March 2016, down from 4.9 percent last year, citing “all-time” low interest rates, high valuations of assets, and an uncertain outlook for economic growth.

In its 2016 annual report published Thursday, GIC said it remains cautious in its outlook, expecting more volatility ahead as governments worldwide implement policy measures such as enabling high frequency trading and tighter regulatory frameworks.

GIC isn’t the only sovereign wealth fund to emphasise the difficulty of delivering returns in a low-yield global economy. Chinese sovereign wealth fund CIC, which manages $814 billion in assets, said in its annual report last week that it sought to beef up its share of private equity co-investments and club deals in 2015 in an effort to bolster returns amid “ever-growing downside risks” in global markets.

To prepare for higher volatility, GIC increased its exposure to bonds and cash at the expense of equities: the share of nominal bonds and cash in GIC’s portfolio increased from 32 percent in 2014 to 34 percent, while developed markets equities saw a slight dip from 29 percent to 26 percent.

Group president and chief investment officer Lim Chow Kiat said that the fund’s globally diversified portfolio and long-term investment approach is “positioned to withstand short-term market volatility, yet still reap strong returns over the long term”.

GIC, which manages over $100 billion of Singapore’s foreign reserves, does not disclose annual performance figures, and only reports averaged returns over a 20-year rolling period. That number has varied widely since GIC’s inception in May 1981, from an all-time high of 10 percent in 2000, which was attributed to low starting valuations at that time, to less than 2 percent in the first half of the 1980s due to high inflation rates in the US.

GIC’s private equity universe includes buyouts, venture capital and special situations such as mezzanine debt, distressed debt, and secondary fund investments. It has invested in over 100 fund managers including Hong Kong-based CDH Investments, Singapore-based Northstar Group, and London-based Apax Partners, according to PEI data.

The sovereign fund’s recent direct investments include Indian e-commerce company Flipkart, Utah-headquartered genealogy website, and Singapore logistics provider QuEST.

The rest of GIC’s asset mix remains largely unchanged from last year – private equity, real estate, and inflation-linked bonds are at 9 percent, 7 percent and 5 percent, respectively.

In terms of geographical distribution, around 34 percent is invested in the US, 31 percent in Asia, 12 percent in the EU, and 7 percent in the United Kingdom. The Americas, Middle East and Africa, and Australasia, make up 8 percent, 6 percent, and 2 percent of its portfolio.