How Singapore’s GIC leapt to the GI 100’s top spot

During a period of inactivity in private real estate, the sovereign wealth fund has motored to the top of the ranking with a surge of transactions.

Against a macroeconomic backdrop of soaring inflation and spiking interest rates stifling real estate investment around the world, the prolific deployment of Singaporean sovereign wealth fund GIC was always going to stand out.

From completing the sector’s biggest privatization in the US to capitalizing the development of life sciences hubs in the UK and industrial parks in Australia, taking stakes in European hotel chains and buying portfolios of grocery retail assets in Brazil, GIC’s deals have catapulted the investor to the top spot in PERE’s annual Global Investor 100 ranking.

With equity of $69 billion deployed in private real estate, according to PERE research, GIC’s total is $2 billion greater than last year’s leader, the German insurer Allianz, and almost $10 billion ahead of the ranking’s long-time top investor and fellow sovereign wealth fund, the Abu Dhabi Investment Authority.

GIC traditionally divulges few details about its investment portfolios, but in an email to PERE, chief investment officer for real estate Lee Kok Sun confirmed the investor’s dedication to the asset class and offered insight into its deployment choices.

“In an era of uncertainty, real estate plays a critical role in providing portfolio diversification and inflation hedging,” he wrote, adding how the investor’s teams “have been working hard to find opportunities that can generate stable returns over the long term.”

In the same email, he highlighted logistics, student accommodation and hospitality as particular areas of focus, describing them as “tailwind sectors” that have survived the accelerated, secular challenges brought by the covid-19 pandemic.

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The state fund has lately found itself residing in a rare cohort of investors able to deploy their resources while others are forced to the market’s sidelines. According to broker CBRE, on a rolling four-quarter aggregate basis, global investment in real estate fell 47 percent to $836 billion in the second quarter this year, reflecting the market conditions during PERE’s data catchment for the GI 100 ranking.

Yet during the 12-month period, GIC deployed $24.5 billion in global property, according to MSCI. Based on publicly available sources, the transactions data provider said that total was up 6 percent year-on-year and double the average it invested in the same 12-month timeframe during the previous five years.

“GIC’s real number could be meaningfully higher,” suggests one Amsterdam-based capital adviser who requested anonymity.

The founder of one of the investor’s fund managers in Asia, who also declined to be attributed, says: “They seem to have been smartly adding high-quality allocations to real estate when others have been shy – as a strategic investor with a long-term horizon should be.”

Actively on trend

Without disclosing all the investment amounts, GIC provided PERE with a list of deals executed within the GI 100 ranking’s data catchment period of the 12 months to June this year. This substantiates the manager’s comments.

Among the standout transactions, the investor made numerous commitments to the Asian logistics funds of manager and Singapore-based neighbor ESR, and completed multiple billion-dollar deals for The Social Hub and Student Roost, the European and UK student accommodation platforms. GIC’s acquisition of the Mediterranean luxury resorts business Sani/Ikos Group was another strategically thematic outlay. Underpinning all these deals is a focus on the growth of e-commerce in underserved markets and the increasing population mobility.

Beyond size, the deals demonstrate the worldwide reach of the sovereign wealth fund’s investment networks. But the investor’s standout transaction of the period happened in the private real estate sector’s biggest market – the US.

The privatization of STORE Capital, in partnership with Chicago-based manager Oak Street Real Estate, was completed in February. At $14 billion, the deal stands out for its price, significant for a trade in the niche net lease sector. When announcing the deal, GIC’s Lee said it was attracted to the REIT’s cashflow profile, long-weighted average lease terms, portfolio diversification and rent coverage.

But another standout element of GIC’s capture of STORE Capital is the institution’s ability to transact on an all-cash basis, demonstrating its equity muscle at a time when other investors, including some of its state-backed peers, still require debt financing.

Furthermore, with GIC’s long-term investing horizon and lower cost of capital – the investor is currently tracking a headline 20-year annualized real return of 4.6 percent – the institution had the bandwidth to stay active while peers grappled with preventive factors such as the denominator effect on their portfolios.

“The government only expects 4 percent [returns],” comments the Singapore-based head of alternative investments at a global consultancy firm, who also declined to be named. “That keeps real estate relevant for them. If you’re GIC, with 20-30 year holds, you’ll be keen to buy during the dip because today’s high interest rates won’t be around forever.”

Done and dusted?

GIC deploys salary contributions to the city-state’s Central Provident Fund from the working contingent of its approximately 5.5 million-strong population, with contributions set to rise following a change in government policy in February. Depending on age, employees contribute between 12.5 and 37 percent of their salaries to the fund. But a cap limiting the amount contributed is going to rise from $6,000 to $8,000 a month, a move which, in theory, should mean GIC has more funds to make investments.

This may not mean the sovereign wealth fund will keep up its currently higher rate of deployment into private real estate, however.

“They probably had the most liquidity out of anyone coming into this cycle’s buying opportunity,” the Amsterdam-based adviser says. “But I actually think they are now near or at allocation.”

GIC is not customarily transparent in its investing plans beyond disclosures in its annual report – and even in that, they are described at a high level only.

But in this year’s report, published in July, the state investor said it had reached the upper policy limit of its real estate allocation after a busy year investing in the asset class. Real estate’s share of its overall portfolio increased from 10 percent in the financial year 2021-22 to 13 percent in the financial year 2022-23 due to “robust deal activity and strong asset performance,” the investor said in the report.

GIC’s annual report was published after PERE’s data collection for this year’s GI 100 ranking, and so its prior 10 percent allocation was used in the calculation of its exposure to private real estate.

As such, while its number one ranking was a first for the sovereign wealth fund since the ranking’s inception, the subsequent increase in allocation to 13 percent gives it every chance of remaining there. GIC can count such an outcome as one of the benefits of making hay while the sun shines on its liquidity advantage.