Singapore state investor turns cautious

SINGAPORE — Singapore’s sovereign wealth fund GIC Pte Ltd, among the world’s biggest investors, said it was turning cautious and expected returns to slow over the next decade, given high valuations, uncertainty over monetary policy and modest economic growth.

“Compared to last year, the world has become more uncertain… but the market seems quite happy,” GIC’s CEO Lim Chow Kiat said in an interview, as the fund published its annual report.

“I hope the market is right, but we are cautious.”

Smaller Singapore peer Temasek Holdings focuses on equities, but GIC, set up to manage Singapore’s foreign reserves, adopts a more conservative investment strategy, with the longterm goal of beating global inflation.

GIC is ranked the world’s tenth biggest sovereign investor, with about $343 billion worth of assets, according to Sovereign Wealth Center.

On Monday, the fund said its portfolio return was 5.1% per annum in US dollar nominal terms over the five years to March 31, 2017, helped by the run-up in global financial assets, versus 3.7% a year ago.

That was below the six percent return of GIC’s reference portfolio of 65% global equities and 35% bonds.

However, the volatility of GIC’s portfolio was lower than the reference portfolio, for all time periods.

“We are prepared for a period of protracted uncertainty and low returns,” said Mr. Lim, 47, who took charge as chief executive officer in January after a 24-year career at the fund.

While market volatility was low by historic standards, helped by accommodative monetary policies, it was out of sync with increased overall uncertainty, the fund said.

Current valuations, it added, suggest excessive optimism over future earnings.

MSCI’s gauge of world equities struck record highs last month.

“Two years ago, we said the market would return x over the next 10 years. We would argue half of the x was returned in the first year, year and a half,” said Jeffrey Jaensubhakij, GIC’s chief investment officer.

“Now there is only half an x over the next eight and a half years.”

In a low- growth, low-yield environment, sovereign wealth funds such as GIC are facing an ever greater challenge to make enough returns to hit internal targets.

GIC reported a 20-year annualized real return — its key measurement gauge — of 3.7% above global inflation for the year ended March, down from four percent a year ago. It invests in growth and defensive assets like emerging and developed market equities, real estate, private equity and inflation-linked bonds and is known to be a patient investor.

GIC’s cautious comments come days before Temasek is likely to report a rebound in its assets to a record high. —