GIC posts stable return above inflation

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SINGAPORE - Sovereign wealth fund GIC has managed to weather a tumultuous global environment that included rising prices and volatile markets to post a stable return for the year.

But it says the environment for investors remains challenging and broad market returns going forward are likely to be low.

GIC, which is one of the three entities that contributes to Singapore's reserves, recorded an annualised rolling 20-year real rate of return of 4.2 per cent for the period ending March 31, after stripping away inflation. This means that every $100 invested with GIC in 2003 would have grown to $228 today, after taking inflation into account.

The figure is higher than the relevant average global inflation rate - which by one measure stood at around 2.8 per cent in the same period - though it marks a slight dip from the 4.3 per cent annualised return in the previous financial year.

The fund measures its performance by evaluating returns over a 20-year period, which started in April 2002 for the financial year just ended.

GIC chief executive Lim Chow Kiat said at a briefing yesterday that investors now face an investment landscape filled with profound uncertainties.

"The macroeconomic environment has entered a high-inflation regime, driven by supply chain disruptions, a rapid recovery in demand and rising wages," he said.

The world is also facing higher risks of fragmentation as geopolitical tensions continue to rise, Mr Lim noted.

Looking ahead, he said the broader market returns "were likely to be low".

"Until we have more so-called restoration of value - meaning yields come up - whether it is bond yields or earnings yields or dividend yields, which may come because prices are lower or somehow, the companies are all doing better, (general) return prospects are still not great," Mr Lim said.

The stable showing from GIC will help bolster Singapore's Budget spending.

The Government can spend up to 50 per cent of the expected long-term investment returns generated by GIC, Temasek and the Monetary Authority of Singapore (MAS).

For this financial year, the Net Investment Returns Contribution (NIRC) has been estimated at $21.6 billion.

MAS said last week that it is not contributing this time around as it recorded a net loss of $7.4 billion on the back of a stronger Singdollar. This meant the value of its foreign exchange reserves dipped when translated into Singapore currency.

Temasek, however, reported two weeks back that its net portfolio jumped above $400 billion for the first time despite volatile market conditions.

Mr Lim said the fund's focus is to make sure that it continues to do as well as it can to generate a return so that the Government has resources for its Budget.

Finance Minister Lawrence Wong said during the Budget speech in February that the NIRC has provided, on average, the equivalent of about 3.5 per cent of the gross domestic product to the annual Budget in the last five years.

Over the past fiscal year, GIC continued to gradually increase the share of private equity and real estate investments that offer protection against inflation. It is seeking to move away from nominal bonds, whose yields are under pressure.

Dr Jeffrey Jaensubhakij, the group's chief investment officer, said the fund will be defensive or invest in companies or asset classes that can hold up better.

"The limitation is that everybody is also trying to get into these inflation-protected sectors and we're also trying to exercise some price discipline.

"I think our teams are trying to balance between the need to be very quick in deploying into these assets but also setting a bar - the reason why we want to go into it is because we expect a better return," said Dr Jaensubhakij.

Correction note: An earlier version of this story said GIC is one of the three entities charged with managing Singapore's reserves. This has been corrected to say that GIC is one of the three entities that contributes to Singapore's reserves.

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