GIC advises caution, predicts rising global volatility

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 3.4% for the 12 months ended March 2018. This follows returns of 3.7%, 4% and 4.9% for the previous three years. GIC noted that the strong returns from the beginning of the tech bubble period in the late 1990s have dropped out of the 20-year window, deflating the headline performance number.

CEO Chow Kiat Lim said that risk assets had generated strong mark-to-market returns in 2017 due to growth in the global economy and benign inflation. However, he warned that this growth has increased the prospects of a withdrawal of decade-long monetary stimulus policies. GIC is also concerned about the possibility of a trade war, with Lim saying that the integration of global supply chains means tariffs or other restrictions will impact more than just the countries directly affected.

Despite its cautious investment stance, the sovereign wealth fund remains ready to take advantage of potential dislocations. “The jump in market volatility experienced in early 2018 offered an indication of potentially bigger market turbulence and opportunities in the future,” Lim observed in his notes accompanying GIC’s latest annual report.

The private equity allocation dropped from 11% to 9% during the 12-month period, while real estate held steady at 7%. Bonds and cash also fell by two percentage points to 35%. Developed market equities was the sole beneficiary of these shifts, climbing from 23% to 27%. Emerging market equities and inflation-linked bonds, on 17% and 7%, were both unchanged.

On a geographical basis, GIC's largest single market is still the US on 32%. This is followed by Asia ex-Japan on 19% and the Eurozone and Japan, which are both on 13%. 

The most significant personnel development of the past 12 months was the appointment of Choy Peng Wu as chief technology officer. The sovereign wealth fund also devoted part of the annual report to explaining its approach to technology investment, which is rooted in backing companies at every stage of the financing lifecycle, from start-up to post-IPO public equity. In one case, GIC invested in a company through private equity and later backed its VC arm and incubator.

The response to technological disruption is like that outlined by Australia’s Future Fund earlier this year: offense, defense, and enterprise excellence. GIC is actively investing in disruptive technologies, protecting existing portfolio companies from disruption, and incorporating technology into its investment management. The latter includes using machine learning for anomaly detection and risk identification and the use of natural language processing to analyze unstructured data.

The GIC investment framework comprises three building blocks: a reference portfolio, currently 65% global equities and 35% global bonds, based on long-term risk appetite; a policy portfolio that offers balanced exposure across different asset classes and envisages an 11-15% private equity allocation; and an active portfolio comprising strategies in which managers add value to the policy portfolio while broadly maintaining the same level of risk.

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