GIC posts resilient real returns above inflation rate
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GIC said it would double down on investments that provide stable long-term returns such as real estate and infrastructure.
PHOTO: REUTERS
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SINGAPORE - Sovereign wealth fund GIC, one of the three entities that contribute to Singapore’s reserves, has posted a resilient performance – the highest 20-year real return in eight years – despite a challenging market marked by continued global uncertainties and stubborn inflation.
The fund said it would double down on investments that provide stable long-term returns such as real estate and infrastructure, even as it moves to tap new opportunities in the sustainability field
GIC said on Wednesday it recorded an annualised rolling 20-year real rate of return of 4.6 per cent for the period ending March 31, after stripping away global inflation.
This means that over the past 20 years, from April 2003 to March 2023, GIC recorded an average annual return of 4.6 per cent – over and above the global inflation rate, which is in line with its mandate. In doing its calculation, GIC uses the weighted average of inflation in different markets.
The rolling 20-year real rate of return, which evaluates yields over 20 years, is the primary metric for evaluating GIC’s investment performance.
The latest figure is better than the 4.2 per cent annualised return
The annualised United States dollar nominal rate of return of GIC’s portfolio was 6.9 per cent over the last 20 years.
GIC chief executive Lim Chow Kiat said at a briefing on Tuesday that the higher yield comes as “there was a very weak year that dropped out”, which helped.
He said the fund’s priority is to increase resiliency “to protect our portfolio from inflation”, so GIC is zooming in on infrastructure and real estate.
Dr Jeffrey Jaensubhakij, the group’s chief investment officer, said infrastructure is an area that is inflation-protected as it can see rental or income increases even if inflation goes up.
For most of the fund’s infrastructure investments, the top line is growing at a rate as fast as, if not faster than, costs, said Mr Ang Eng Seng, chief investment officer for infrastructure. “Ironically, in a higher inflationary environment, your nominal return can actually go higher.”
This strategy is reflected in its asset mix. The share of the real estate category, which includes infrastructure investments, in GIC’s portfolio has risen to 13 per cent this financial year, from 10 per cent a year ago, while the share of emerging market equities edged up to 17 per cent from 16 per cent.
The fund’s holdings in nominal bonds and cash went down to 34 per cent of the portfolio, from 37 per cent a year ago.
By geography, the US continues to make up the bulk of GIC’s portfolio at 38 per cent. This is followed by Asia, excluding Japan, at 23 per cent.
GIC is also moving in on sustainability-related investment opportunities by creating specialised teams within asset classes.
These include the climate change opportunities portfolio in public equities that will deploy more capital towards climate mitigation and adaptation, the sustainability solutions group in private equity to ramp up investments in early-stage energy transition, and the transition and sustainable finance group in fixed income and multi asset that will invest in areas such as decarbonisation and the grey-to-green transition.
“We see expanding opportunities in the green transition space, and are confident that the new teams, as well as all other investment teams, will further integrate sustainability factors into GIC’s investment and corporate processes,” Mr Lim said in a statement.
Looking ahead, he told the media that several challenges remain, including a high level of uncertainty as well as a structurally high level of interest rates that are not ideal for financial returns or valuation.
In a difficult environment, sometimes there are opportunities that long-term investors like the fund can take advantage of, Mr Lim noted, adding that GIC will proceed carefully.
The stable showing from GIC will cushion 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 has been estimated at $23.5 billion.
MAS in early July said that its net loss of $30.8 billion has no impact on the NIRC that is available for Government spending. It also contributes to the Government budget via the consolidated fund. While no contribution to the consolidated fund will be accrued in FY2022/23, MAS noted that the Government will still receive $0.4 billion this financial year based on the contribution accrued for FY2020/21, when it recorded net profits.
MAS chief Ravi Menon said it is unlikely to be able to contribute to the consolidated fund over the next few years until it generates future profits that exceed the cumulative losses of $38.2 billion in the latest two financial years.
Singapore’s investment company Temasek reported two weeks ago that its net portfolio posted a $7.3 billion net loss
Correction note: An earlier version of this story said GIC posted a resilient full-year return. This has been corrected to say that GIC has posted a resilient performance – the highest 20-year real return in eight years. The story has also been updated for clarity with regard to MAS’ contributions to the NIRC and the Government budget.
