The preeminent Singaporean sovereign wealth fund GIC Private has announced an annualized real rate of return of 4 percent in the 20-year period ending March 31 this year from its investment portfolio, down from the 4.9 percent recorded in the same period last year, largely on account of low bond returns and volatility in global equity markets.
In its annual report released this morning the state fund said it anticipates “significantly lower and volatile returns in the next 10 to 20 years” because of the low-yield environment and global macroeconomic stability.
“These difficult investment conditions can stretch for the next 10 years,” said Lim Chow Kiat, deputy group president and group chief investment officer for GIC in the statement. “GIC is prepared for this protracted period of all-time low interest rates, modest global growth prospects and high valuations of financial assets. Even as we expect the real returns for the GIC Portfolio to be lower going forward, we aim to take advantage of our long-term horizon, skills and global reach to find attractive investment opportunities.”
GIC does not release annual performance numbers or specific returns for each of the asset classes it invests in. It currently has over $100 billion in assets under management.
According to the latest annual report, the asset mix of its portfolio has not significantly changed from last year, barring a slight reduction in the allocation to developed market equities from 29 percent to 26 percent and increase in bond holdings from 32 percent to 34 percent. The allocation to real estate has remained constant at 7 percent.
The real estate allocation continues to remain less than GIC's target allocation range for the asset class. According to its Policy Portfolio, which outlines GIC's long-term asset allocation strategy, real estate allocation should be between 9 percent and 13 percent.
According to a Bloomberg report, GIC has said that it would “strive harder to reduce its portfolio costs” and to that effect it would continue to invest more in real estate and private equity where allocations are less than its long-term target.
“Most asset classes are inflicted with a high valuation problem,” Kiat told Bloomberg. “In the private markets such as real estate, infrastructure and private equity there are more opportunities to add value. We continue to want to emphasize these areas.”