Singapore’s GIC warns of challenging investment environment

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GICSingapore’s sovereign-wealth fund GIC warned of a challenging investment environment over the next decade, as global central banks unwind easy-money policies amid a modest growth outlook for many developed economies.

The fund said it sees greater investment opportunities in emerging economies compared with some developed markets, where ultra-low interest rates have inflated prices across all asset classes. GIC, which manages Singapore’s foreign-exchange reserves, said it oversees more than $100 billion in assets, though analysts estimate the figure is closer to $300 billion.

“Asset prices have risen strongly, but the outlook for economic growth and earnings have not, thus far, improved as much,” said Lim Chow Kiat, GIC’s group president and chief investment officer. He said that, with economies normalising their monetary policies and interest rates rising, financial assets will see diminished returns.

“Further, the current high prices in financial markets portend weaker future returns, including possibly negative returns at some point.”

The sovereign-wealth fund doesn’t usually disclose its investments and only reports on the performance of its portfolio over 20-year, 10-year and five-year periods.

The sovereign-wealth fund reported a 4.1-per cent 20-year real rate of return for the fiscal year that ended March 31. In US dollar terms, the fund achieved a nominal return of 6.5 per cent over the same period. Over a five-year period, the annualised nominal return in US dollar terms was 12 per cent; over 10 years, it was 7 per cent.

The fund said in its latest annual report that it has had to cut its exposure to developed stock markets to 29 from 36 per cent during the same period last year, while boosting exposure to 19 from 17 per cent in emerging-market stocks. Investments in bonds and cash accounted for 31 per cent, compared to 29 per cent last year, and exposure to real estate fell to 7 from 8 per cent.

Lim said emerging markets are generally more attractive given that many of these countries are able to institute overhauls to produce higher growth and have the advantage of a younger population.

“Risk-reward in developed markets are not so attractive,” he said, but added that GIC will continue to look for opportunities in the US and Europe, especially in those companies that have benefited from international expansion.

On China, GIC said it continues to maintain a positive view on the economy and believed in the ability of the government to carry out overhauls.

“We would say with the reforms, China’s long-term prospects will be better, and we see investment opportunities as they implement these reforms,” Lim said.

The sovereign-wealth fund has been rebalancing its portfolio since the start of the year, with a focus on the technology and consumer sectors across the globe. Some of its big investments include one recent deal, when it invested in one of India’s largest e-commerce companies, Flipkart Internet Pvt., which raised $1 billion in new funding to compete with the likes of Amazon and eBay.

In March 2014, the fund acquired an interest in the Time Warner Center in New York along with the Abu Dhabi Investment Authority for $1.3 billion. In emerging markets, GIC invested $170 million in Netshoes, a Brazilian online sporting-goods retailer, which also has Singapore state investment firm Temasek Holdings as a shareholder.

In November last year, the Singapore fund teamed up with Philippine conglomerate Ayala Corp. to take a 9.9 per cent stake in the Bank of the Philippine Island, the country’s third-largest lender by assets, for about $680 million.

Established in 1981, GIC was among the sovereign-wealth funds that invested heavily during the financial crisis by pumping billions of dollars into Western banks. It holds stakes in UBS AG and Citigroup. The fund said it remains optimistic about the growth prospects of those banks.

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Reading Time: 3 minutes

Singapore’s sovereign-wealth fund GIC warned of a challenging investment environment over the next decade, as global central banks unwind easy-money policies amid a modest growth outlook for many developed economies.

Reading Time: 3 minutes

GICSingapore’s sovereign-wealth fund GIC warned of a challenging investment environment over the next decade, as global central banks unwind easy-money policies amid a modest growth outlook for many developed economies.

The fund said it sees greater investment opportunities in emerging economies compared with some developed markets, where ultra-low interest rates have inflated prices across all asset classes. GIC, which manages Singapore’s foreign-exchange reserves, said it oversees more than $100 billion in assets, though analysts estimate the figure is closer to $300 billion.

“Asset prices have risen strongly, but the outlook for economic growth and earnings have not, thus far, improved as much,” said Lim Chow Kiat, GIC’s group president and chief investment officer. He said that, with economies normalising their monetary policies and interest rates rising, financial assets will see diminished returns.

“Further, the current high prices in financial markets portend weaker future returns, including possibly negative returns at some point.”

The sovereign-wealth fund doesn’t usually disclose its investments and only reports on the performance of its portfolio over 20-year, 10-year and five-year periods.

The sovereign-wealth fund reported a 4.1-per cent 20-year real rate of return for the fiscal year that ended March 31. In US dollar terms, the fund achieved a nominal return of 6.5 per cent over the same period. Over a five-year period, the annualised nominal return in US dollar terms was 12 per cent; over 10 years, it was 7 per cent.

The fund said in its latest annual report that it has had to cut its exposure to developed stock markets to 29 from 36 per cent during the same period last year, while boosting exposure to 19 from 17 per cent in emerging-market stocks. Investments in bonds and cash accounted for 31 per cent, compared to 29 per cent last year, and exposure to real estate fell to 7 from 8 per cent.

Lim said emerging markets are generally more attractive given that many of these countries are able to institute overhauls to produce higher growth and have the advantage of a younger population.

“Risk-reward in developed markets are not so attractive,” he said, but added that GIC will continue to look for opportunities in the US and Europe, especially in those companies that have benefited from international expansion.

On China, GIC said it continues to maintain a positive view on the economy and believed in the ability of the government to carry out overhauls.

“We would say with the reforms, China’s long-term prospects will be better, and we see investment opportunities as they implement these reforms,” Lim said.

The sovereign-wealth fund has been rebalancing its portfolio since the start of the year, with a focus on the technology and consumer sectors across the globe. Some of its big investments include one recent deal, when it invested in one of India’s largest e-commerce companies, Flipkart Internet Pvt., which raised $1 billion in new funding to compete with the likes of Amazon and eBay.

In March 2014, the fund acquired an interest in the Time Warner Center in New York along with the Abu Dhabi Investment Authority for $1.3 billion. In emerging markets, GIC invested $170 million in Netshoes, a Brazilian online sporting-goods retailer, which also has Singapore state investment firm Temasek Holdings as a shareholder.

In November last year, the Singapore fund teamed up with Philippine conglomerate Ayala Corp. to take a 9.9 per cent stake in the Bank of the Philippine Island, the country’s third-largest lender by assets, for about $680 million.

Established in 1981, GIC was among the sovereign-wealth funds that invested heavily during the financial crisis by pumping billions of dollars into Western banks. It holds stakes in UBS AG and Citigroup. The fund said it remains optimistic about the growth prospects of those banks.

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