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Singapore's GIC warns of potentially "low and volatile returns"

By Asia Asset Management  
Jul 5, 2019

Singapore sovereign wealth fund GIC Pte Ltd, which manages the city state’s foreign reserves, is warning of potentially “low and volatile” future returns, citing weak market fundamentals and increasing economic uncertainties.

The fund this week reported a rolling 20-year annualised real return of 3.4% for its financial year ended March 31, 2019, unchanged from 2018.

According to GIC's Chief Executive Officer Lim Chow Kiat, the fund is “observing high risk asset valuations that mask weak market fundamentals and growing economic uncertainties".

"The investment landscape today continues to point to low and volatile returns in the future," Mr. Lim says in GIC's annual report released on July 3.

He notes that financial markets are now focused on the US Federal Reserve's next policy move, trade tensions between major powers, and “growing political polarisation”.

The report says the annualised return has been below 4% over the past three years because the “exceptionally high” returns earned during the 1990s technology bubble has dropped out of the 20-year window.

"We expect this one-off effect, coupled with the continuing environment of low returns, to weigh on the rolling 20-year return over the medium term," it says.

The report does not provide an overview of the fund’s performance for any single year.

GIC’s investments in nominal bonds and cash accounted for 39% of its total portfolio as at March 31, up from 37% a year ago.

The share of investments in developed market stocks dropped to 19% from 23%, while investments in emerging-market stocks and private equity each edged up one percentage point to 18% and 11%, respectively.

Investments in real estate and inflation-linked bonds were unchanged at 7% and 5%, respectively.

Geographically, the US accounted for the biggest proportion of the fund’s investments at 32% in the last financial year, unchanged from before, while the Asia ex-Japan share climbed to 20% from 19%.

Japan’s share dropped to 12% from 13%, the same as for the eurozone.

GIC does not publicly disclose its assets data. According to the Sovereign Wealth Centre, the fund had US$398 billion of assets under management as at end-March 2018.