• Sovereign wealth fund GIC invests Singapore’s reserves with the goal of preserving and enhancing their international purchasing power
• GIC’s main measure of its performance is over a 20-year period
• In the latest 20-year window, up to March 2021, the average annual returns on top of inflation were 4.3 per cent
• That is up from 2.7 per cent for the 20-year window dating back from March 2020
• GIC will continue its long-term shift in investment approach by focusing on pockets of opportunities

SINGAPORE — Sovereign wealth fund GIC reported an average annual return of 4.3 per cent, over and above the global inflation rate of about 2 per cent, across a 20-year period from April 2001 to March 2021.

This is sharply higher than the 2.7 per cent annualised real rate of return from the 20-year period before the last set of figures, up to March 2020, and the highest over a 20-year window since 2015.

GIC regards the 20-year timeframe as the key measure of its performance, as this irons out bumps along the way and is in line with its mandate to preserve and enhance the international purchasing power of the reserves under its management.

Its report card was released on Friday (July 23). During a media briefing the day before, GIC’s chief executive officer Lim Chow Kiat said that the improved rate of return this time is because the financial year of 2000, which saw declining returns due to the bursting of the dot-com bubble, had dropped out of the 20-year window.

Despite the global Covid-19 pandemic, global markets still performed well in the most recent financial year, which has now been added into the window, as massive government stimulus was pumped into economies around the globe.

In line with its practice, GIC did not disclose the fund’s 12-month performance in the most recent financial year. State investment firm Temasek Holdings, which operates on different investing guidelines, recorded a 24.5 per cent jump in the value of its portfolio in the year ended March 31, 2021.

Besides global equities, Mr Lim said that other risk assets also performed really well in the most recent year.

This includes assets in sectors that have been hurt by the pandemic, such as real estate and travel.

The development of the Covid-19 vaccine had also contributed to the strong performance in financial markets last year.

Dr Jeffrey Jaensubhakij, GIC’s group chief investment officer, said that economies will likely continue to recover in the near term.

“There’s already been a sharp growth rebound from countries that have been able to open up. And we think that the many emerging markets that are currently still in some form of lockdown will, over the course of six to 12 months, get the vaccines that are needed, allowing them to open up,” he added.

UNCERTAINTY REMAINS OVER LONGER TERM

That said, there remains a high degree of uncertainty in the macro environment over the longer term.

One reason is that the Covid-19 pandemic is still causing lockdowns and economic disruptions, Dr Jaensubhakij noted.

“Vaccines are not fully available in all parts of the world yet and therefore, different variants of concern may still be moving around. And so, we’re still concerned about that.” 

Supply constraints as a result of movement restrictions have also caused prices of some goods, such as commodities, to pick up, he added.

And concerns on inflation may lead some central banks to decide to raise interest rates, which could slow down the positive impact of the stimulus packages given out earlier.

Another concern is that the level of returns from a range of assets in the next five to 10 years may be low due to high valuations of these assets, Dr Jaensubhakij said.

INVESTMENT APPROACH

Mr Lim said that GIC will continue its long-term shift in investment approach by focusing on pockets of opportunities, instead of "relying on broad market returns".

GIC has to focus more on a bottom-up investment approach and work with external partners, in response to divergences in the market, he added.

Dr Jaensubhakij said that these micro opportunities are brought about through technological transformation, such as in healthcare.

“Even if the broad range of assets are not likely to do that well, there will still be smaller niche pieces that have very good opportunities,” he said.

Another area of focus is on sustainability.

Dr Jaensubhakij said that GIC is partnering its portfolio companies to transit into a lower-carbon way of doing business, and that the fund’s teams work from the ground up to incorporate sustainability into investments in debt, equity, private equity and infrastructure.

GIC is not original in recognising these areas of opportunities, so competition from other investors is tough, he added.

However, one of its advantages is that it focuses on long-term returns. So it is not pressured to chase after expensive and low-return investments, or it is able to wait out initial concerns relating to the investments over one to two years.

When asked for reasons why GIC increased its investment in Asia, excluding Japan, from 20 per cent a year ago to 26 per cent now, Dr Jaensubhakij said that government debt in Asia is paying higher interest rates than in other regions.

Asian companies are also attractive when comparing their valuations to those in the United States, which are very high.