GIC’s focus on long-term value aims to avoid permanent loss amid intensifying economic changes

SINGAPORE - Singapore’s GIC said it will continue to diversify across asset classes, geographies, sectors and time, and act with agility as it seeks to deliver steady inflation-adjusted long-term returns.

Keeping to this investing approach is all the more crucial amid the unprecedented shifts in the investment landscape, said the sovereign wealth fund, which manages the Republic’s foreign reserves.

Presenting GIC’s 2024-2025 annual report on July 24, its chief executive Lim Chow Kiat said the forces shaping today’s global investment environment go beyond any market cycle or structural trend.

“They strike at the foundations of the global order. They are rewriting the rules of global investing,” he said in his letter to stakeholders.

“Today, these forces have only intensified and are much harder to prepare for,” he added.

Faced with these profound changes, Mr Lim said, it is tempting to chase the short-term hype or retreat in the face of the unknown.

“At GIC, we do neither. We focus on long-term value, with an emphasis on avoiding permanent loss. We apply ‘inversion’ – studying the typical causes of permanent impairment in order to steer clear of them.”

At the same time, technological shifts such as artificial intelligence (AI) present the opportunity for GIC to diversify investments across markets and assets and use granularity and agility in investment decisions, ensuring long-term real returns.

For the year ended March 31, the fund reported a 3.8 per cent real rate of return for an annualised rolling 20-year period. GIC measures its portfolio in US dollars, and to derive real return it adjusts it for global inflation, which is based on a basket of currencies.

The return was lower than the 3.9 per cent reported in the previous year and the 4.6 per cent posted in the year before that.

“Our long-term returns remained stable, though in recent years, a confluence of factors has affected this performance,” Mr Lim said.

The annual result of the investment fund – established in 1981 to secure Singapore’s financial future – predates US President Donald Trump’s reciprocal tariff policy unveiled on April 2.

The GIC report said that while US policy changes around tariffs, immigration and government spending are weighing heavily on sentiment, the actual outcomes of these new policies remain uncertain. However, most scenarios suggest a higher likelihood of increased inflation and an increased probability of recession, said the report.

Mr Lim said cyclical shifts – such as tariff-induced supply shocks, higher inflation and slower growth – have the potential to produce a wider cone of outcomes and interact with deeper, longer-term forces playing out over years rather than quarters.

He said GIC’s response to these challenges will rely on two pillars – top-down portfolio construction and bottom-up asset selection.

“We diversify with intent, deploy with granularity, act with agility and invest in partnerships, always taking the long view, protecting against permanent impairment, and preparing rather than predicting,” said Mr Lim.

GIC groups changes unfolding over the long term into two categories – structural and foundational.

While structural shifts evolve within the existing system and can often be analysed and prepared for, foundational shifts fundamentally transform the system itself, challenge long-held assumptions and require a basic rethinking of portfolio construction and investment management.

Mr Lim said that structural shifts include rising public debt, demographic changes, reconfiguration of supply chains, growing global imbalances between savings and spending, and widening gaps in technology adoption.

“These are already altering capital flows across borders, weighing on productivity in some regions, and influencing long-term returns.”

In contrast, foundational shifts go even deeper, redefining the world order once based on free trade, capital mobility and institutional trust.

“Longstanding assumptions about safe havens, liquidity and asset correlation are being challenged. Politics and geopolitics now influence economies and financial markets directly and immediately,” he said.

US tariffs announced in April were met with a bout of global market volatility, raising investor concerns over their long-term impact on global trade, growth, inflation and public finances.

“In an increasingly more volatile and fragmented trade system, policy decisions can quickly reverse advantages, reminding us that today’s winners may not remain so tomorrow,” said Mr Lim.

He said with global power competition intensifying, similar fragmentation is unfolding in capital markets, with financial systems dividing along geopolitical fault lines, complicating cross-border investing.

“Finally, artificial intelligence and the climate transition are also unfolding in ways that signal not only long-term transformation but foundational change, reshaping how economies function, how capital is deployed and how future value will be created.”

According to the GIC report, the medium-term outlook also remains challenging and a few key elements of the changing investment environment will likely prove more durable and impact returns for the next decade.

The report said: “First, governments globally are prioritising national security issues and economic resilience over economic efficiency. At the same time, they are struggling to maintain domestic legitimacy.

“These challenges may increase fiscal spending and push debt levels higher.”

In China, trend growth is poised to slow, given an ageing population and lower productivity growth.

“Policymakers are grappling with the right policy mix to transition towards sustainable long-term growth against cyclical external headwinds,” said the report.

AI could meaningfully raise longer-term growth and productivity. But there are questions around timing, scale and scope, particularly over the distribution of positive and negative impacts.

Lastly, climate change progresses even as investor attention has waned.

On diversification, granularity and agility – the tools GIC uses to build a robust investment portfolio – Mr Lim said the fund will continue to diversify across asset classes, geographies, sectors and time.

“For example, in private markets, we spread investments across multiple years – known as time or vintage year diversification – to avoid overexposure to any single time period.”

Granularity will allow GIC to be precise, and make investments more targeted, said Mr Lim.

For instance, within broad themes like AI or climate, opportunities vary widely across value chains.

Hence, GIC will break these down into investible segments, by distinguishing between enablers like chipmakers or data centre providers, monetisers like cloud platforms and software companies, and adopters integrating AI into their operations.

Agility, meanwhile, will require GIC to act decisively as trends evolve.

Mr Lim said: “In volatile markets, dislocations arise when market participants are forced to buy or sell, creating mispriced assets. By preserving liquidity and flexibility, we can respond when others can’t – whether in private credit during bank lending crunches, or secondaries where liquidity-seeking investors sell at discounts.

“Additionally, we see agility as the ability to spot underappreciated themes early.”

Mr Lim said that as the investment world grows more complex, GIC’s responsibility to steward Singapore’s reserves – with integrity and foresight – will remain its guiding purpose.

“2025 may be a turning point in markets – and in history. There are decades where nothing happens, and weeks where decades happen. We are living in one of those moments,” he said, referencing a quote attributed to Soviet leader Vladimir Lenin.