Singapore’s GIC refines investment approach

The revised framework - the product of GIC's second major review since its inception in 1981 - was implemented in April and explained in the sovereign fund's 2012-2013 annual report, released last Friday.

GIC's exposure to alternative investments dropped by one percentage point to 26% over the 12-month period ended March 2013. Private equity and infrastructure remained on 10% while real estate and absolute returns were unchanged on 10% and 3%, respectively. Natural resources fell to 2% from 3%.

Having boosted its cash reserves in 2011-2012 at the expense of fixed income and developed market public equities, GIC tempered its position over the subsequent 12 months. Cash holdings dropped from 11% of the portfolio to 7%, fixed income rose from 17% to 21%, and developed market equities crept up from 30% to 31%.

The fund also increased its US exposure - from 33% to 36% - while Europe and Asia both dropped by one percentage point, to 25% and 28%, respectively.

GIC said the change in investment framework means it can be more responsive to the post-global financial crisis investment environment, as well as capitalizing on its long-term perspective, global presence, skilled team and capabilities to invest in cross-asset opportunities.

The fund broke down its strategy into three phases: two decades of conservatism, when the focus was on building capabilities and exposure to different asset classes; a shift to an endowment-style approach in the 2000s, with greater tolerance for risk and lower need for liquidity, and increased allocation to private and emerging markets; and a focus on long-term drivers of returns from 2013 onwards.

There are three long-term drivers in the new approach. First, the reference portfolio, comprising 65% global equities and 35% bonds, is consistent with GIC's mandate to secure a reasonable rate of return above inflation without taking excessive risk.

Second, the policy portfolio is intended to improve long-term returns compared to the passive reference portfolio. It focuses on six core asset classes: developed market equities, emerging market equities, nominal bonds and cash, inflation-linked bonds, private equity, and real estate. The private equity portion of the policy portfolio is 11-15%, with real estate on 9-13%.

Third, the active portfolio allows management to pursue opportunities that fall outside the policy portfolio remit, described as "skill-based and opportunistic strategies." These will be funded by selling asset classes in the policy portfolio, so they must exceed the opportunity cost.

GIC, which claims to have invested well over $100 billion while independent assessments put its wealth at more than $300 billion, generated a 4% 20-year annualized real rate of return for the year ended March 2013. This compares to 3.9% a year ago. In nominal US dollar terms, the portfolio has generated 2.6% over a five-year period and 6.5% over 20 years.

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• Topics
• Southeast Asia
• Performance
• Investments
• GIC Private
• Performance
• Sovereign wealth fund
• Singapore
• Southeast Asia