- Reports annualized 20-year real yield of 4.2%
- Increased allocation to private equity to 17% from 15% last year
- Executives see inflation as a medium-term challenge
- GIC increases investments in real estate, infrastructure
- Says has dry powder for new possibilities
SINGAPORE, July 27 (Reuters) – Singapore sovereign wealth fund GIC, one of the world’s largest investors, braces for subdued investment returns and expects little recovery from runaway inflation that has forced central banks around the world to tighten monetary policy tighten.
“Inflation itself is already a problem because we want a return that’s higher than inflation,” GIC chief executive Lim Chow Kiat told Reuters in an interview at the fund’s 37th-floor office overlooking the financial district.
“Certainly we must assume that the macroeconomic environment will remain challenging for the foreseeable future,” he said, highlighting rising interest rates and their impact on economies and financial assets, as well as the accompanying volatility in the markets.
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According to research firm Global SWF, GIC is the sixth largest sovereign investor in the world with assets of $799 billion.
Larger peers such as Norway’s sovereign wealth fund and Japan’s Government Pension Investment Fund have also pointed to difficult market conditions, citing inflation and geopolitical events. Continue reading
GIC reported an annualized 20-year real yield of 4.2% for the year to March, versus 4.3% for the same period last year. The United States was the largest market, accounting for 37% of its portfolio, up from 34% a year ago.
Lim said central banks are likely to tighten further, at least in the short term, to fight inflation.
Worries about runaway inflation have trumped central bank concerns about growth. The Federal Reserve is likely to hit a key milestone on Wednesday with a rate hike that effectively ends pandemic-era support for the economy. Continue reading
“The challenge is that we don’t look at inflation just as a short-term phenomenon, but actually something that will likely be part of the investment environment over the medium term,” said Prakash Kannan, GIC’s chief economist.
CHINA TECHNOLOGY SETBACK
GIC has added real estate investments to its portfolio, focused on office, retail and industrial real estate, as well as other sectors such as data centers and infrastructure.
“Many of the real estate and infrastructure investments actually have either automatic CPI (Consumer Price Index) tabs or the ability to increase rents once the lease expires,” said Jeffrey Jaensubhakij, GIC’s group chief investment officer.
The fund said it has increased its headcount across its real estate and infrastructure groups by about 35% over the past three years.
Last month, GIC agreed to buy a large stake in Europe-based The Student Hotel with Dutch pension fund APG, in a deal that valued the student accommodation and hotel group at $2.2 billion.
GIC, which counts Alibaba (9988.HK) and Meituan (3690.HK) among its Chinese investments, said the worst is likely over after a crackdown on tech regulation in the world’s second-largest economy.
“It shouldn’t get any worse in terms of pace and intensity. Whether it will subside or not is another question, but stocks have fully reflected that,” Jaensubhakij said, adding that China still offers opportunities for GIC beyond the technology sector.
GIC’s portfolio delivered an annualized return of 7.7% in nominal US dollars for the five years ended March 2022, compared to 8.8% for the same period ended last year.
This compares to an 8.5% annualized return over five years for GIC’s benchmark portfolio, which is 65% global equities and 35% bonds.
GIC has investments in digital assets and Jaensubhakij said the recent market shakeout in the crypto market has revealed vulnerabilities among the weaker players while the underlying technologies still show promise. Continue reading
GIC is prepared to benefit from any sharp correction in asset prices in key sectors, he said.
“We have been cautious, but that caution actually gives us a little leeway in this type of environment. That means we probably provided some dry powder.”
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Reporting by Anshuman Daga and Yantultra Ngui; Edited by Sumeet Chatterjee and Susan Fenton
Our standards: The Thomson Reuters Trust Principles.
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