Singapore’s GIC implements new investment framework; outlines investment view
05 August 2013
News, Asia, Global
By Toby Garrod
Singapore’s GIC has implemented a new investment framework to manage its portfolio in the changing environment since the global financial crisis.
This new investment framework explicitly isolates three drivers of GIC’s long-term performance. First, the reference portfolio, based on a balance of 65% global equity and 35% bond market indices, defines the amount of risk the government is prepared to have GIC take. Second, the policy portfolio represents GIC’s asset allocation strategy to improve long-term returns compared to the passive reference portfolio. Third, the active portfolio allows the GIC management to execute skill-based and opportunistic strategies.
“We reviewed our investment approach and critical assumptions about our client’s risk and return expectations, to enable GIC to continue delivering steady returns exceeding global inflation,” says Lim Chow Kiat, group chief investment officer (GCIO). “The new framework defines more clearly GIC’s risk and return drivers, its long-term investment objectives, and the responsibilities of the GIC Board and management.”
Mr. Lim succeeded Ng Kok Song as GIC’s GCIO on February 1. Mr. Ng remains an advisor to GIC in the role of chair of global investments. He is also a member of GIC’s international advisory board, and an advisor to the investment strategies committee and the group executive committee. He also continues as a director on the boards of GIC Asset Management (GAM), GIC Real Estate, and GIC Special Investments.
In the annual report released on August 2, GIC reported steady long-term investment returns on the country’s foreign reserves. The GIC portfolio’s 20-year annualised real rate of return for the year ended March 31 is 4.0%, compared to 3.9% the previous year. This means that over 20 years, GIC has enhanced the portfolio with a return averaging 4.0% per year on top of having protected the portfolio against global inflation.
"In this year’s report, we continue to offer specific insights into GIC’s investment considerations,” says Lim Siong Guan, group president. “The feature article on GIC’s new investment framework describes this structure against the perspective of GIC’s evolving investment approach since its founding. We constantly optimise our investment model with changing conditions, because we are ever conscious of our responsibility to contribute to the well-being of current and future generations of Singaporeans."
Meanwhile, a report from the Wall Street Journal on August 1 said the sovereign wealth fund (SWF) is preparing to take advantage of volatile markets over the next twelve months, particularly given the possibility of a China slowdown, by boosting its exposure to stocks. It is also bullish on the US, considering it a major destination for investments.
"The US is the furthest along in terms of it no longer needing policy support," the CIO was quoted as saying in an interview. "The U.S., in particular the private sector, time and again has shown that they are able to deal with crisis and challenges. It continues to produce many companies which are profitable and competitive."
GIC, established in 1981, is one of Asia’s most established SWFs. Although highly regarded, it is ranked just No. 25 out of 47 by the Linaburg-Maduell Transparency Index, developed at the Sovereign Wealth Fund Institute by Carl Linaburg and Michael Maduell to compare the transparency of SWFs globally.
While exact figures are not known, the GIC is thought to manage between US$100 billion and $330 billion, according to the Peterson Institute for International Economics.
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