De-risking measures limit COVID-19 damage to GIC portfolio

Further, the sovereign wealth fund, which claims to have invested well over $100 billion while independent assessments put its wealth at more than $300 billion, expects its long-term outlook to pay off once the current volatility abates. A reconfiguration of Asian economies in response to deglobalization trends, increased emphasis on governance, and industrial consolidation are tipped to be the major themes.

Meanwhile, valuations remain high – largely because of government stimulus efforts across multiple markets – so GIC will act with caution. “At the same time, with structural shifts and likely episodic market volatility, we are prepared to deploy capital into individual opportunities,” Chow Kiat Lim, GIC’s CEO, said in a letter accompanying the group’s annual report.

The increase in nominal bonds and cash holdings from 39% to 44% was the most noticeable change in GIC’s allocation during the year ended March. Private equity exposure rose from 12% to 13%, following a one percentage point increase last year. The combined allocation for developed and emerging market equities fell from 37% to 30%, with real estate holding steady at 7%.

GIC’s 20-year annualized return for the same 12 months was 2.7%, down from 3.4%. The group has repeatedly said that 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.

While GIC doesn’t disclose portfolio size, Lim noted that the government has drawn S$52 billion ($38 billion) from its foreign reserves – a more than tenfold increase on the amount drawn during global financial crisis. This is intended to support four COVID-19 relief packages totaling S$93 billion. GIC managers these reserves alongside the Monetary Authority of Singapore and Temasek Holdings. The S$52 billion is in addition to S$18 billion in net investment returns for the 2020 financial year.

GIC warned last year that high-risk asset valuations were masking weak market fundamentals and growing economic uncertainties. It believes COVID-19 has brought these existing vulnerabilities to the fore and accelerated several shifts that could shape the global investment landscape. These include: policymaking defined by low interest rates and high levels of debt; headwinds for globalization, best exemplified by China-US decoupling; and consolidation driven by corporate stress.

Asia is expected to take an initial hit due to its reliance on external demand. However, the region will outperform in the long term thanks to urbanization and middle-class growth, investments in infrastructure and human capital, and deeper regional integration through trade flows and capital markets.

GIC’s 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
• Singapore
• GIC Private