GIC’s returns hold steady at 3.4%, maintains cautious investment stance amid uncertainties

green and white leafed plantsSINGAPORE: Singapore sovereign wealth fund GIC saw steady returns for its last financial year, but reiterated a cautious stance amid an uncertain investment climate marked by challenges including a protracted trade row.

For the year that ended Mar 31 this year, GIC’s key metric of investment performance, the 20-year annualised real rate of return, came in at 3.4 per cent, according to the latest annual report released on Wednesday (Jul 3).



This was unchanged from the return rate in FY2017/18, but lower compared to the years prior. That number was 3.7 per cent for FY2016/17, 4 per cent for FY2015/16 and 4.9 per cent for FY2014/15.

When asked whether a return rate below four per cent is becoming the new normal or a drop below three per cent could happen in the years ahead, CEO Lim Chow Kiat said he “can’t really predict exactly what percentages”, but is cautious about investment prospects amid high valuations and a range of uncertainties that might “be around for quite a while”.

Another factor contributing to the decline in GIC’s benchmark return rate is the way it is calculated.

The 20-year annualised rate of return is a “rolling” return, where years are dropped and added as the computation window moves. For instance, the figure for FY2018/19 represented the average return of GIC’s portfolio between April 2000 and March 2019. Next year’s will measure the average return from 2001 to 2020.



Explaining why the return rate fell below four per cent for the last three years, GIC said that can be attributed to the “exceptionally high returns” from the tech-bubble period of the late 1990s being dropped out of the 20-year window, while the post-bubble declines remained.

This one-off effect is set to persist and weigh on the 20-year return figure over the medium term, said Mr Lim at a media briefing held a day earlier.

In US dollar nominal terms, GIC’s portfolio returns were 5.5 per cent per annum over the last 20 years, slightly above the 5.2 per cent annualised return from its reference portfolio. The latter, made up of 65 per cent global equities and 35 per cent global bonds, refers to the risk that GIC can take to generate good long-term investment returns.

As at the end of the last financial year, developed market equities accounted for 19 per cent of GIC’s portfolio, down from 23 per cent a year ago.

This corresponded with a two-percentage-point increase in the allocation to nominal bonds and cash to 39 per cent – the highest level since GIC began issuing annual reports in 2008.

It also slightly increased its allocation to emerging market equities from 17 per cent to 18 per cent, as well as private equity from 11 per cent to 12 per cent.

Inflation-linked bonds and real estate form the other asset classes in GIC’s portfolio – both of which remained unchanged in terms of their compositions.

Lowering its exposure to developed market equities and in turn increasing its hold in nominal bonds and cash, is reflective of how GIC has turned “a bit more defensive”, explained Mr Lim.


This cautious stance comes as the investment climate ahead is likely to be one marked by challenges pointing to low and volatile returns, noted GIC which acts as the fund manager of Singapore Government assets.

Apart from high asset valuations and slowing global growth, heightened political and policy uncertainties remain amid an ongoing trade conflict between the United States and China, continuing fragmentation in Europe and the long-drawn Brexit process.

“We see a future (with) quite a number of outcomes that are skewed to the downside,” said Mr Lim. These include a disorderly unwind of high debt, “constrained” space for policymakers to counter downturns and a possible de-globalisation given the protracted trade tensions, he added.

On the lingering trade conflict between the world’s two biggest economies, Mr Lim noted that there is already some impact on trade and investments given the uncertainty of a resolution.

While there is a possibility of a compromise in some areas on the back of a restart in US-China trade talks, there is also the real risk of a breakdown in trust that can result in a less-cooperative relationship and a “very long-lasting negative impact”.

“We are concerned … that if it’s a prolonged period of trade tensions, you can lose a lot of the benefits of globalisation – whether it’s supply chains or free movement of capital and investments,” said Mr Lim.

As a global investor, GIC would “still very much prefer a globalised world where we continue to benefit from productivity gains, innovation and knowledge sharing”, he added.


Regardless, GIC said it continues to look out for opportunities and stands ready to take advantage of potential market dislocations.

This could include domestic measures that countries like China might implement in the medium term to counter the effects of the trade row, and how there has been a renewed push in free trade, via bilateral or regional initiatives, among some nations, said group chief investment officer Jeffrey Jaensubhakij.

The US-China trade conflict has also resulted in the “pushing and pulling of different industries”, he added.

This means that while some industries could be impacted, there are some that may grow as a result and still see long-term potential.

Mr Jaensubhakij stressed that this remains early days yet, but there are parallels in the deals announced this week.

GIC on Monday announced that it had entered into an 80:20 joint venture with data centre company Equinix to acquire and develop six hyperscale data centres in Europe for more than US$1 billion.

The proliferation of data gathering and processing of data “will not be affected” by the trade tensions, said Mr Jaensubhakij, adding that this is an area with “quite significant growth” in the next five to 10 years.

Same goes for its US$8.4 billion deal to buy US freight railroad owner Genesee & Wyoming (G&W), also announced on Monday.

G&W’s portfolio of 120 short line railroads, largely in North America, can tap the US domestic demand, which is unlikely to see large disruptions as a result of the trade war, explained Mr Jaensubhakij.

Other areas that remain on its radar include the technology sector, as well as the Asian region where it continues to take a “constructive view” in the long term on the back of high growth potential and attractive investment opportunities.

Asked if this means that GIC could invest more in the region, Mr Lim said: “If Asia continues to grow strongly as it has in the last 30 to 40 years, I think the chances of Asia taking up more of our exposure are good.”

Currently, GIC holds 12 per cent of its portfolio in Japan and 20 per cent in Asia excluding Japan. The rest of its portfolio is distributed among markets such as the United States (32 per cent), United Kingdom (6 per cent), Eurozone (12 per cent), Latin America (3 per cent), Middle East, Africa and the rest of Europe (7 per cent), as well as rest of the world (8 per cent).

Overall, the Singapore sovereign wealth fund said its diversified portfolio, disciplined investment approach and flexible capabilities will help it withstand the challenging investment environment.

It will continue to invest prudently, said Mr Lim in response to a question about the Monetary Authority of Singapore’s recent announcement of a S$45 billion transfer from the official foreign reserves (OFR) to GIC.

“It’s more responsibility with more capital that we have to deploy for higher returns,” he told reporters.

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