GIC 'more defensive' in investing stance

In 2013, GIC implemented a new framework enabling it to take a more active approach to investment. Some of its deals where it co-invested with sector partners include one with the Canada Pension Plan Investment Board and The Scion Group to acquire Un
In 2013, GIC implemented a new framework enabling it to take a more active approach to investment. Some of its deals where it co-invested with sector partners include one with the Canada Pension Plan Investment Board and The Scion Group to acquire University House Communities Group (pictured).PHOTO: GIC
In 2013, GIC implemented a new framework enabling it to take a more active approach to investment. Some of its deals where it co-invested with sector partners include one with the Canada Pension Plan Investment Board and The Scion Group to acquire Un
GIC acquired a stake in US electricity transmission firm ITC with Fortis.PHOTO: GIC

But it will commit capital if there are good opportunities, in multi-pronged approach amid low-yield environment

Sovereign wealth fund GIC said it had been more defensive in its investing stance in the past year, owing to more challenging investment conditions.

The fund's approach was reflected in its move to increase its holdings of bonds and cash, at the expense of developed market equities, which are seen as more risky.

"It reflects our caution on the overall environment. All those reasons we talked about: low growth, high debt and expectation of high volatility," said GIC deputy group president and group chief investment officer Lim Chow Kiat.

GIC pared its holdings in developed market equities to 26 per cent as of March 31 this year, down from 29 per cent in the previous year. Its allocation in nominal bonds and cash rose to 34 per cent from 32 per cent.

"Developed market equities overall, we think they are rich and stretched in terms of valuation," Mr Lim said. "But that doesn't mean individual assets within that have no upside."

 

The only other segment with a rise in asset allocation was emerging market equities, up from 18 per cent in the previous year to 19 per cent, GIC's latest annual report showed.

GIC reported a dip in its 20-year annualised real rate of return to 4 per cent for the financial year ended March 31.

Economists said the search for yield will become more challenging amid slower global growth, but agreed that emerging markets should offer opportunities.

"The emerging markets would probably be the story for the near term. If you look across all the developed markets, they are struggling with slow growth and negative inflation, and the ageing demographic is also more advanced," said Ms Selena Ling, OCBC Bank's head of treasury research and strategy.

GIC said it will also continue to look at private equity investment, which made up 9 per cent of its asset mix as of the end of March - unchanged from the previous year. Its investment in real estate was also unchanged at 7 per cent, as was inflation-linked bonds at 5 per cent.

Even as the firm cut its exposure in developed market equities, it said there are still firms in the United States, Europe and Japan that could offer decent returns under the "active management" approach.

Mr Lim said some sectors of interest include the natural resources and financial sectors - which have been affected by the market sell-off - as well as healthcare, which is seeing strong growth.

GIC said it has put in a sound investment framework and multi-pronged approach to deal with the low-yield environment.

One element is active investing where it will commit capital if there are good bottom-up opportunities, which means investing where there are specific companies that have good fundamentals.

OVERALL CAUTION

It reflects our caution on the overall environment. All those reasons we talked about: low growth, high debt and expectation of high volatility.

GIC DEPUTY GROUP PRESIDENT AND GROUP CHIEF INVESTMENT OFFICER LIM CHOW KIAT

A second area is watching its asset allocation. This refers to how GIC constructs its portfolio based on where it sees its risks and returns.

The third prong is to actively manage the costs of the portfolio.

In 2013, GIC implemented a new framework enabling it to take a more active approach to investment, execute opportunistic strategies and be more engaged with its partners and investee companies.

This approach can be seen in some recent deals where it co-invested with sector partners. They include the acquisition of a stake in electricity transmission firm ITC with Fortis, as well as the deal to buy University House Communities Group with The Scion Group and the Canada Pension Plan Investment Board.

A version of this article appeared in the print edition of The Straits Times on July 28, 2016, with the headline 'GIC 'more defensive' in investing stance'. Print Edition | Subscribe