Singapore’s sovereign wealth fund GIC posted an annualised real rate of return of 3.9% for the 20-year period ended March 31, 2024, compared with 4.6% in the previous year, according to its annual report released on Wednesday. The growth, its main performance indicator, was slowest since its 2.7% investment return in 2020.
For the 20-year period from April 1, 2004, to March 31, 2024, the annualised nominal return of GIC’s portfolio was 5.8%. The report explained that if $1 million were invested with GIC in 2004, it would have grown to approximately $3.1 million in 2024. This is also reflective of how global inflation has had an impact on the returns.
“Investors are now in uncertain terrain and must rely on their purpose and unique strengths. In GIC’s case, our purpose – to preserve and enhance Singapore’s foreign reserves for the long term – means staying disciplined and diversified,” said Lim Chow Kiat, Chief Executive Officer of GIC, in an official statement.
The sovereign wealth fund has over the past years been diversifying on a far more granular level to enhance the resilience of the total portfolio. This includes increasing its investments in infrastructure and real estate.
Additionally, investment teams across all asset classes maintain strict price discipline, carefully evaluating the risk-reward prospects of potential investments to ensure adequate compensation for assuming the risks.
“The profound uncertainty we face is likely to continue to weigh on returns. Amidst this volatility, we must play to our strengths and seize new opportunities,” added Lim, illustrating climate transition as an example.
GIC identified an opportunity to leverage its long-term, flexible capital to bridge a funding gap for climate technologies such as green steel and battery storage. These companies often find themselves caught between traditional funding sources; they require long-term capital to grow but are too mature for venture and growth equity while lacking the track record to attract infrastructure funding.
In response, GIC established an investment programme for green assets this year, building on the early success of the Sustainability Solutions Group within the Private Equity department in investing in climate technologies.
Global outlook
GIC‘s exposure to the US grew to 39% of its total investment portfolio in the year ending March 31, 2024, from 38% the same period a year ago, according to its report.
The UK and Eurozone rose to 5% and 10% from 4% and 9%, respectively, while exposure to Japan alone and to Asia, excluding Japan, dropped to 4% and 22% from 6% and 23%, respectively, the report showed. It does not disclose China’s share.
Despite recent macroeconomic resilience, the global investment environment remains challenging due to several factors, GIC said in its report. These include the likelihood of prolonged tight monetary policy settings in the US, macroeconomic challenges in China related to its property market, and continued heightened geopolitical tensions.
The medium-term return prospects remain low, and risk-reward less favourable, given elevated valuations across many risk assets, particularly in developed markets.
The resilience of the global economy has decreased the near-term likelihood of a recession. However, the greater resilience may slow the disinflation process, evident in elevated inflation rates within the services sector.
The report notes that if inflation turns out to be more persistent than anticipated or increases, central banks might need to keep rates higher for longer and potentially raise them further. Not only would this increase recession risks it would put strains on households and businesses already struggling with high borrowing costs.
An abrupt other risk pointed out in the report is slowdown in China, if there is a further downturn in the property market.
There are also the geopolitical risks to contend with – the broader unrest in the Middle East, for example. This could hamper growth and raise inflation through oil supply and trade disruptions.
On the upside, faster adoption and productive use cases of AI could generate higher productivity growth than anticipated, added the report.