GIC’s real annualised returns over 20-year period fall marginally to 4.2%

SINGAPORE — Sovereign wealth fund GIC has reported an average annual real return on its investment portfolio of 4.2 per cent, after taking into account the global inflation rate, across a 20-year period from April 2002 to March 2022.

This is marginally lower than last year’s 4.3 per cent annualised real rate of return, which was the highest the investment manager of Singapore’s reserves had recorded over a 20-year window since 2015.

GIC’s latest financial report card was released on Wednesday (July 27).

Last year, GIC said its average rate of return had jumped from 2020’s 2.7 per cent because the financial year of 2000, which saw declining returns due to the bursting of the dot-com bubble, had dropped out of the 20-year window.

GIC regards the 20-year time-frame as the key measure of its performance, as this irons out bumps along the way and is in line with its mandate to preserve and enhance the international purchasing power of the reserves under its management.

During a media briefing on Tuesday, GIC chief executive officer Lim Chow Kiat said the world has entered an era of high inflation driven by supply chain disruptions, a rapid recovery in demand, and rising wages.

This, he said, is in addition to a world that is also facing increased risk of fragmentation as geopolitical tensions continue to rise.

“That poses a lot of different kinds of challenges…(because) it affects everybody — in the financial market, policymakers, investors, banks, all have to deal with this issue.”

In spite of these challenges, Mr Lim said GIC was “able to deliver good, stable returns over and above global inflation”.

GIC said in its latest report that in 2021, the global economy recovered from the sharp economic downturn experienced in 2020, but then suffered a market correction early this year.

However, GIC’s diversified portfolio and “cautious investment stance” helped to cushion its performance from the market correction.

Over the financial year which ended in March this year, GIC said the share of developed and emerging market equities, and nominal bonds and cash fell, in line with broader market conditions.

As such, the sovereign wealth fund said it has continued to gradually increase the share of private equity and real estate.

For instance, as of March 31 this year, private equity and real estate comprise 17 per cent and 10 per cent of GIC’s asset mix respectively.

In contrast, they only formed 15 per cent and 8 per cent of the asset mix respectively as of March 31 last year.

As for developed and emerging market equities, they now comprise 14 per cent and 16 per cent of the asset mix respectively, down a little from last year’s 15 per cent and 17 per cent.

Meanwhile, nominal bonds and cash now form 37 per cent of the asset mix, as opposed to last year’s 39 per cent.

Dr Jeffrey Jaensubhakij, GIC’s group chief investment officer, said that one of the firm’s investment strategies is focusing on real assets, such as real estate and infrastructure, as potential measures to cushion the effects of inflation.

He said that as real assets can be linked to the consumer price index (CPI) — which measures the average change in prices paid by consumers over a period of time for a basket of goods and services — it could mean “automatically” getting a rental increase when inflation goes up, in the case of a CPI-linked contract for example. 

“Or, because it's supply and demand, as demand goes up and inflation goes up, you can raise your rents accordingly.”

Separately, GIC announced that it had established a dedicated sustainability office, which is headed by Ms Rachel Teo.

Ms Teo joined GIC in 2005, and is concurrently the firm’s head of total portfolio sustainable investing in the economics and investment strategy department.

The sustainability office, said GIC, will allow it to further its research into key sustainability issues, and push to integrate sustainability into its investments and corporate processes.

Mr Lim said that climate change is something GIC takes seriously, and its goal is to help the real economy achieve a low-carbon outcome.

One way to achieve this, he said, is by investing in new technologies that could help mitigate climate change.

Looking ahead, given the uncertain environment that GIC painted, Mr Lim said it is not possible to predict whether it can achieve a similar average annual return in the years to come.

“We have said for a number of years that the prospective returns going forward were likely to be low,” said Mr Lim.

“Unfortunately, until we have more so-called restoration of value, meaning yields come up — whether it is in bonds, earnings or dividends — or, somehow, companies are all doing better…the return prospects are still not great.”