GIC posts real re­turn of 3.4%

The New Paper - - NEWS - AN­GELA TAN

But sovereign wealth fund warns of chal­leng­ing in­vest­ment cli­mate over the next few years

Sovereign wealth fund firm GIC con­tin­ues to de­liver steady long-term re­turns, but warned yes­ter­day of a chal­leng­ing cli­mate ahead.

Its bench­mark 20-year an­nu­alised real rate of re­turn be­tween April 1998 and March 2018 was 3.4 per cent above the rate of global in­fla­tion.

This num­ber was 3.7 per cent for the 2017 fi­nan­cial year, 4 per cent for 2016 and 4.9 per cent for 2015.

“The line has come down ... even though his­tor­i­cally, this num­ber hov­ered around 4 per cent real rate of re­turn over and above global in­fla­tion,” chief ex­ec­u­tive Lim Chow Kiat said at a brief­ing yes­ter­day.

“That’s be­cause the high re­turns at the be­gin­ning of the pe­riod – the late 1990s – have dropped out of the 20-year win­dow.”

The late 90s saw the dot­com bub­ble, which fu­elled stock mar­kets and gen­er­ated good re­turns for GIC.

GIC noted that the in­vest­ment cli­mate looks to re­main chal­leng­ing over the next few years with high val­u­a­tions, slow global growth and sig­nif­i­cant un­cer­tain­ties.

Mr Lim said GIC’s di­ver­si­fied port­fo­lio would be able to hold up rel­a­tively well as the team is pre­par­ing for the wors­en­ing in­ter­na­tional trade rows.

“If the trade ten­sion es­ca­lates, it is a mat­ter of how bad it gets to, we would ex­pect some im­pact. But we cer­tainly are pre­par­ing for that as an out­come that has ris­ing prob­a­bil­ity,” he said.

Group chief in­vest­ment of­fi­cer Jef­frey Jaen­sub­hakij said trade dis­rup­tions meant the global sup­ply chain would have to change, bring­ing op­por­tu­ni­ties to tweak the port­fo­lio, adding: “It re­quires us to think harder and be more nim­ble.”

GIC warned that un­cer­tain­ties, in­clud­ing ten­sions around in­come in­equal­ity, pop­ulism, geopo­lit­i­cal con­flicts and the po­ten­tial neg­a­tive im­pact of dis­rup­tive tech­nolo­gies, per­sist.

“Nev­er­the­less, we re­main ready to take ad­van­tage of po­ten­tial dis­lo­ca­tions. The jump in mar­ket volatil­ity ex­pe­ri­enced in early 2018 of­fered an in­di­ca­tion of po­ten­tially big­ger mar­ket tur­bu­lence and op­por­tu­ni­ties in the fu­ture,” Mr Lim said.

It is main­tain­ing a cau­tious in­vest­ment stance given high as­set val­u­a­tions, the risk of ris­ing in­ter­est rates and height­ened un­cer­tainty.

In nom­i­nal US dol­lar terms – not ad­justed for in­fla­tion – GIC’s port­fo­lio re­turned 5.9 per cent a year for the 20 years to Mar 31, 2018.

That pe­riod in­cluded the poor mar­ket per­for­mance due to the global fi­nan­cial cri­sis and the Euro­pean debt cri­sis.

Mr Lim out­lined the strat­egy ahead: “What we can do is to fo­cus on our ap­proach which is to make sure our port­fo­lio is ro­bust, di­ver­si­fied, able to move through even dif­fi­cult en­vi­ron­ment.”

an­ge­lat@sph.com.sg

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