Rising asset prices helped lift GIC's full-year returns but the investment firm warned yesterday that times are getting tougher.
GIC's 20-year annualised real rate of return - its most important benchmark - was 4.9 per cent for the financial year ended March 31, up from the 4.1 per cent in the previous year. This means that between 1995 and March 31 this year, the firm yielded a 4.9 per cent annual return from its investments while also ensuring that its portfolio value was not eroded by global inflation of around 2 to 3 per cent.
Its five-year return was 6.5 per cent in United States dollar terms and 6.3 per cent over 10 years.
GIC is the world's eighth-biggest sovereign wealth fund with US$344 billion (S$470 billion) of assets under management, according to the Sovereign Wealth Fund Institute.
Its growth in returns reflects the equities bull market that followed the 2008 financial crisis but the outlook will not be as rosy given how pricey assets have become, said group chief investment officer Lim Chow Kiat at a briefing yesterday.
"We see a more difficult investment environment, largely because the broad market valuations are high. It's not simply because markets have gone up, but also because fundamentals in many markets have not kept pace with their rising prices," he noted.
As major central banks across the world unwind their monetary easing policies in the coming years, more market volatility will set in, Mr Lim noted: "We see that as posing difficulty in the next five to 10 years in terms of market returns."
CIMB Private Banking economist Song Seng Wun agreed that the investment landscape will be "tough" for GIC after the strong returns in recent years. "The global bull markets in the last four to six years have certainly helped GIC. But given the slow economic growth and divergent monetary policies ahead, good returns like last year's will not be the norm in future," he said.
"To find better return amid volatility, GIC may look more at private equity and real estate, which still have room to build up more assets as allowed by its policy."
The portfolio policy announced in 2013 guides the allocation of six key assets. It allows for 11 to 15 per cent of the total portfolio to be in private equity and 9 to 13 per cent in real estate. Private equity made up only 9 per cent in the actual portfolio as at March 31, while real estate accounted for 7 per cent.
Nominal bonds and cash were the biggest segment at 32 per cent, up from 31 per cent last year. The weight of developed markets equities was unchanged at 29 per cent while emerging markets equities comprised 18 per cent, down from 19 per cent a year ago.
In geographical terms, assets in the Americas accounted for 43 per cent of the total portfolio, up from 42 per cent previously. Asian assets were also up, rising from 27 per cent of the portfolio to 30 per cent. Assets in Europe dropped from 29 per cent to 25 per cent.
Despite challenging conditions ahead, GIC will keep its eyes on the long term and refrain from changing its asset mix and distribution in response to short-term volatility, Mr Lim said. He added that the portfolio figures do not reflect GIC's activities on the ground. The firm set up a new office in Brazil last year to mark its strategic focus there, for instance, even though Latin America's portfolio weight fell from 4 per cent to 3 per cent.
GIC also announced yesterday that Deputy Prime Minister Teo Chee Hean was appointed chairman of GIC's international advisory board on April 8. The appointment followed the death of former chairman Lee Kuan Yew.