GIC hoards cash as alternatives allocation nudges up

The Government of Singapore Investment Corporation has significantly increased its cash supply with a view to capitalising on future investment opportunities, the sovereign wealth fund said in its annual report published today.

GIC, established to manage and invest the reserves of the city-state of Singapore, said its cash holdings increased to 11 percent from 3 percent after it elected not to recycle as much capital in the year.

Ng Kok Song, its group chief investment officer, said: “Due to heightened uncertainty in global markets, we allowed cash inflow from investment income and fund injection to accumulate during the year in preparation for better investment opportunities.”

He struck a cautionary tone in the report: “Looking ahead, we assess that the investment environment will be characterised by a global economy struggling to return sustainable growth.”

He highlighted how developed countries in the world would continue to endure an “extended period” of deleveraging, how Europe’s prolonged weakness had led to large countries in the region like Spain and Italy being sucked into the debt crisis, how the US economy was facing “political gridlock” ahead of this year’s elections, and how China’s growth was slowing. Nonetheless, he said a cyclical slowdown in China was necessary for its economy to consolidate to a more “sustainable growth trajectory.”

GIC, which manages $247.5 billion of assets according to the Sovereign Wealth Fund Institute, said in the report its allocation to alternative investments rose by 1 percent in the year 2011/2012 to 27 percent.

That nudge upwards came in the form of a 1 percent increase within its private equity and infrastructure portfolio which it groups together. GIC’s real estate allocation remained 10 percent for the second consecutive year. The other components within the fund’s alternatives allocation, namely absolute return strategies and natural resources, remained unchanged at 3 percent each.

GIC has been one of world’s most active alternative assets investors since its inception in 1981 and, particularly in light of current financial markets and equities volatility, other state investors have been following suit and aggressively trying to build out comparable platforms. Fellow sovereign wealth fund, China Investment Corporation, for instance, said last week in its own annual report that it had grown its alternative investments to $40.4 billion from $29.3 billion in just one year. Korea’s National Pension Service, for another example, set itself a short timeframe to increase its allocation to alternative investments from a target of 5.8 percent in 2011 to 10 percent by 2015, according to its most recently published annual report.

Common to each is a reduction in their exposure to public equities as a result. Like CIC announced last week, GIC reduced its exposure to public equities – to 45 percent of total assets this year from 49 percent last year.

In another key takeaway, GIC said it increased its exposure to Asia investments by 2 percent to 29 percent. That increase came at the expense of European investments, which fell by 2 percent to 26 percent.

Also, the sovereign wealth fund said its global head of real estate investments, Michael Carp, had retired. Carp had risen through the ranks at GIC and was previously head of investments for GIC Real Estate’s Americas division.

Overall, GIC posted positive returns across its 20-year, 10-year and 5-year horizons. The sovereign wealth fund recorded a 10-year annualised return for 2011/2012 of 3.9 percent – the same as the previous year. Its annualised nominal rate of return over 5 years was 3.4 percent and over 10 years it was 7.6 percent.