Singapore's GIC expects weak returns in coming decade

The group - which claims to have invested well over $100 billion while independent assessments put its wealth at more than $300 billion - posted a 20-year annualized return of 4% for the 12 months ended March 2016. This compares to 4.9% in 2015 and 4.1% in 2014.

Elaborating on their expectations for the next 10 years, Siong-Guang Lim and Chow-Kiat Lim, GIC's president and group CIO, respectively, noted the strong chance of economic volatility. They highlighted the challenges facing policy makers in large economies seeking to take substantial measures with unpredictable outcomes, as well as changes in market structure that could constrain banks' balance sheets and impact market liquidity.

GIC's annual report outlines three potential scenarios: "back to normal," where lower growth in developed markets is by China and India, contributing to rising interest rates and equity prices; long-term "stagnation" - triggered by situations such as a US recession, the Eurozone breaking up, or a hard landing in China - and trade and investment restrictions that trap the global economy in sub-par growth; and "stagflation," where high debt, easy monetary policy, and populism results in many countries tolerating higher inflation but investment performance struggles due to weak growth.

GIC is not the only government-backed investor in Asia to see diminished performance in the last year: Temasek Holdings reported the biggest single-year drop in the value of its investment portfolio since the aftermath of the global financial crisis, while China Investment Corporation (CIC) posted the first annual negative return on its international portfolio in four years.

CIC said it had responded to the deteriorating investment environment through measures such as ramping up investments in assets that generate stable returns such as real estate and infrastructure, while addressing more co-investment and club deal opportunities in private equity. GIC was not as specific, merely noting that its long-term horizon meant it was well-positioned to address the coming challenges. It added that exposure to alternatives such as real estate and private equity have increased significantly over the past decade.

There was minimal change in the composition of GIC's portfolio during the 12 months to March, with the PE allocation remaining at 9% and real estate at 7%. Exposure to developed market equities dropped by three percentage points to 26%, with the emerging market equities and bonds seeing small rises to 19% and 34%, respectively.

In April, the sovereign wealth fund restructured its management structure somewhat, appointing CIOs across private equity, infrastructure, real estate, fixed income and public equities to sit below Lim and the division presidents. Yong-Cheen Choo was named CIO for private equity.

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• Topics
• Southeast Asia
• LPs
• Performance
• GIC Private
• Singapore