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GIC's annualised real returns over 20-year period stay at 3.4%

SINGAPORE — The latest figures are in for Singapore’s sovereign wealth fund GIC, which seeks returns for the nation’s more than US$100 billion (S$135.6 billion) in reserves invested around the globe.

Sovereign wealth fund GIC looks to achieve good, long-term returns for more than US$100 billion (S$135.6 billion) of Singapore's reserves that it invests around the globe.

Sovereign wealth fund GIC looks to achieve good, long-term returns for more than US$100 billion (S$135.6 billion) of Singapore's reserves that it invests around the globe.

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SINGAPORE — The latest figures are in for Singapore’s sovereign wealth fund GIC, which seeks returns for the nation’s more than US$100 billion (S$135.6 billion) in reserves invested around the globe.

In its 2018/19 annual report published on Wednesday (July 3), GIC said that it has achieved an average annual return of 3.4 per cent — over and above the global inflation rate of about 2 per cent — across a 20-year period from April 1999 to March 2019.

The Government, which owns GIC, regards a 20-year horizon as the best way to measure its performance given GIC’s mandate “to achieve good long-term returns above global inflation”.

If a 10-year period is used, GIC comes out looking better, with 8.6 per cent annualised returns, before inflation is factored in. But it notes that this figure is pumped up by the spectacular rebound of stock markets after the global financial crisis.

The “annualised rolling 20-year real rate of return” was unchanged from a year ago — also 3.4 per cent — but lower than the 3.7 per cent figure achieved in 2017.

That means this rate of return has come in below 4 per cent, after factoring in inflation, for three straight years. By comparison, in the early 2000s, GIC achieved rates of return using the same measure of nearly 6 per cent.


In the report, GIC explains that this is because the exceptionally high investment returns achieved in the technology bubble in the late 1990s have dropped out of the 20-year window it uses, even as the declines suffered after the bubble burst remained in the window.

The 1990s technology bubble, buoyed by early exuberance over investments in Internet-based firms, saw an exponential increase in technology stocks. The bubble burst in 2000.

GIC said it expects this one-off effect, coupled with the continuing global environment of low returns, to weigh on its rolling 20-year returns in “the medium term”.

Investment returns around the globe are seen as unusually low, with interest rates at rock-bottom almost everywhere, and asset prices generally seen as high.

Still, GIC said it continued to deliver steady long-term returns after accounting for global inflation. 

The purchasing power — the amount of goods and services each unit of money can buy — of the funds it manages has nearly doubled between April 1999 and March 2019.


GIC, set up in 1981, manages government reserves, including surpluses amassed since the country’s independence.

It is one of three entities managing Singapore’s reserves as part of a strategy to diversify risks. The other two are the Monetary Authority of Singapore (MAS), the country’s central bank, as well as state investor Temasek Holdings.

It is the Government’s fund manager, and it invests only in assets outside Singapore. It does not own the assets. Conversely, Temasek Holdings is an investment firm that owns the assets it manages.

In May, the MAS transferred S$45 billion from Singapore’s official foreign reserves to the Government. GIC manages the funds, which are to be invested over a longer term to bring higher expected returns.

GIC's chief executive officer Lim Chow Kiat was asked on Tuesday, at a briefing on its annual report, what it would do with the extra money.

He said it would be part of the fund’s investment portfolio and absorbed into how GIC deploys funds. “It is more responsibility. There is more capital that we have to deploy to earn higher returns. But it does not drive us into a new strategy or a specific allocation.” 


GIC’s portfolio is spread across six categories of assets:

  • Developed-market equities. These are stocks and other financial instruments in developed countries such as Japan and the United States.

  • Emerging-market equities. These are stocks and other financial instruments in emerging countries such as India and Indonesia.

  • Nominal bonds and cash. These are generally seen as safe investments. Bonds pay a set percentage of returns.

  • Inflation-linked bonds. These take inflation into account in paying returns.

  • Private equity. These are investments in companies that are not listed on stock exchanges.

  • Real estate.

The latest figures show that equities in developed markets formed 19 per cent of GIC’s portfolio, down from 23 per cent a year ago. Equities in emerging markets rose from 17 per cent to 18 per cent. The share of nominal bonds and cash continued its climb from 37 per cent to 39 per cent amid mounting global uncertainty.

One-fifth (20 per cent) of GIC’s portfolio is in Asia (excluding Japan), up from 19 per cent a year ago. Japan forms 12 per cent. About a third (32 per cent) is in the United States, unchanged from a year ago.


Mr Lim said that GIC is positive about Asia, noting that the region (excluding Japan) already forms 36 per cent of global gross domestic product, the most common measure of economic output.

GIC noted that deeper regional integration and continued investments in infrastructure and human capital, among other things, will drive Asia’s growth. Infrastructure includes big-ticket items such as airports, rail and ports.

However, Mr Lim added that challenges remain, including the need to continue reforming and keep up with technology.

Asked if Asia could overtake the US as GIC’s largest market in the near future, Mr Lim said the odds are “good” the region could form a bigger part of its portfolio if it continues to grow strongly — as it has in the previous three or four decades.

But high growth does not necessarily mean good investment opportunities, Mr Lim said. “For example, if there is too much capital, then it may not be as attractive because the prices will be too high, but (in the) long term, we can see that the growth prospects are very positive.”

GIC group chief investment officer, Dr Jeffrey Jaensubhakij, said that GIC would be able to find more opportunities to invest in Asia as institutions continue to strengthen in the region and companies shore up their corporate governance.

As the trade dispute between the US and China drags on, there are signs that supply chains could shift to Asia. Asked if GIC has noticed this trend, Dr Jaensubhakij said it was early days yet, but he noted that Chinese companies have been talking about opening factories in South-east Asia, thus allowing them to diversify their export sources.


US-China trade tensions:

“We are concerned… If it is a prolonged period of trade and broader tensions, you can lose a lot of the benefits of globalisation, whether it is about supply chains, free movement of capital investment… We would very much prefer a globalised world, where we continue to benefit from productivity gains, innovation (and) knowledge-sharing.”

The Hong Kong unrest and whether it would affect GIC’s investment strategy in greater China:

“We looked at it with some concern and we wish that they can find a way forward because Hong Kong is a very important financial and business centre. So, it will be really good if they can… stabilise; I think that will be good for everybody. I do not see it affecting how we think about greater China.”

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