SINGAPORE - Singapore's sovereign wealth fund GIC has significant exposure to emerging markets, and views them as positive contributors to long-term real returns, said its chief executive Lim Chow Kiat.
At the 5th anniversary celebration of GIC's Brazil office last Thursday, he highlighted the opportunities that emerging markets offer, adding that they make up over 20 per cent of GIC's portfolio.
This is higher than most global investors, said Mr Lim.
GIC, which has investments in over 40 countries and has been investing in emerging markets for more than two decades, manages a diverse portfolio of foreign assets in excess of US$100 billion on behalf of the Singapore government.
"We simply cannot expect broad market exposures to give us the same levels of historical returns," he told a forum in Sao Paulo. "We need to supplement with alphas, or idiosyncratic exposures, but do so cautiously and only in areas where we can commit to building capabilities."
GIC's office in Sao Paulo was an example of that, he said. Despite the challenging environment in Brazil over the past five years, he noted that GIC not only stayed on but expanded its capabilities and partnerships.
Mr Lim said GIC's investment stance took into consideration concerns over high uncertainty in the global investment environment.
Key issues, he said, included China's slowdown, a flare-up in geopolitical conflicts as well as inflation which is rising faster than expected, after a lack of inflationary pressures in the past decade. This affects asset valuations.
In the longer-term, there were also structural issues such as demographic changes, high leverage and limited policy room, he said.
He raised concerns over "brewing instability of the middle class in developed countries, stemming from uneven participation in globalisation and technology".
"If these persist, the result will be weaker growth," he said. "Coupled with high starting asset prices, investors face the prospects of lower future investment returns."
Weighing in on the prospects of Brazil, an emerging market as well, Mr Lim said GIC believed the country was on its way to economic recovery - although it still needs to complete social security reforms, privatisation and tax simplification. If done well, there is potential for growth and recovery, he said.
GIC has a 25 per cent stake in Brazilian telecommunications company Algar Telecom and, as part of a consortium, also acquired a 90 per cent stake in NTS, the natural gas pipeline unit of Brazil's Petrobras.
Mr Lim added that the fund remained positive on Brazil's consumer-related sectors such as healthcare and education, and was keeping an eye on other areas like real estate and infrastructure.
"We already have exposures in all these areas," Mr Lim said. "As the economy grows, we look to build on them."