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GIC’s RE investments underperform in short-term

The Singaporean sovereign wealth fund blames the weaker performance of alternative assets like real estate for lower medium-term returns, but has not decreased its allocation to real estate and expects long-term returns to make up for the drop.


GIC Private, formerly the Government of Singapore Investment Corporation, has kept its allocation to global real estate steady at 10 percent, although its real estate portfolio has been underperforming compared to its other assets since the beginning of the global financial crisis, according to GIC’s annual report published late last week.

The 20-year annualized real rate of return for GIC’s global portfolio increased to 4 percent from 3.9 percent the previous year, according to the report. To continue delivering long-term returns, the $248 billion Singaporean sovereign wealth fund emphasized its “core strengths: a long-term perspective, a global presence, a skilled and experienced team, and the ability to invest in cross-asset opportunities.”

However, GIC’s report also pointed out that its five-year annualized rate of return was a much lower 2.6 percent in US dollar terms overall. The medium-term returns have “been affected by the weaker performance of alternative asset classes like real estate and infrastructure, which were slower to recover after the 2008 to 2009 Global Financial Crisis,” the report claimed without giving further details.

However, GIC’s allocation to real estate remained constant over the past year at 10 percent. Allocations to other asset classes such as natural resources and cash were decreased. GIC only increased allocations to fixed income investments and public equities.

Despite the lower performance over the five-year period, GIC is still “very confident” that its real estate investments will outperform over the long term, according to a GIC spokeswoman. Public markets have simply recovered faster from the crash of 2008 and 2009.

The spokeswoman also pointed out that the company has created an “active portfolio” layer on top of its main portfolio in order to make more opportunistic investments with higher returns, though the size of that portfolio is not set. Certain opportunistic real estate investments will fall into the active portfolio now, but since GIC still considers real estate a long-term play, most of its real estate investments will still be included in its main portfolio.

“The active portfolio was constructed to allow us to take part in strategies that bring us alpha,” she told PERE.

GIC is one of the few institutional investors that invests in all four quadrants of real estate, and has made a number of commitments to private equity real estate funds, such as Morgan Stanley Real Estate Fund VII Global and Andersson Real Estate Investment Management funds, according to PERE’s Research and Analytics Division. Most recently, the government-owned investment company also extended its tie-up with UNITE Group in the UK for the £330 million (€407.6 million; $536.06 million) London Student Accomodation Joint Venture (LSAV) last year.