That the announcement of various changes to the leadership team at GIC - including the elevation of Mr Lim Chow Kiat to chief executive - caused barely a stir speaks of the confidence the general public has in the sovereign wealth fund's ability to continue managing Singapore's foreign reserves ably. Yet the leadership changes come at a critical juncture. The global investment climate is challenging as economic growth languishes, something that GIC acknowledged in its recent results. Its key benchmark - the 20-year annualised real rate of return - has fallen to 4 per cent from the 4.9 per cent reported the previous year.
The pullback from globalisation and free trade and the political uncertainty as major economies head to the polls next year, including France, Holland and Germany, can only intensify the demand for yield. GIC will be facing stiffer competition from the likes of large pension funds and sovereign wealth funds, all needing to generate returns as state budgets are stretched by populist policies. The world's largest pension fund, Norway's Government Pension Fund Global, has had to make its first withdrawals from the fund to compensate for budget shortfalls as commodity prices decline.
That risk exists here too, with calls on the public purse set to get more urgent as the population ages. Consequently, the burden of contributing to the state coffers would weigh on the leadership's shoulders. The McKinsey Global Institute believes a period of diminishing returns is the order of the day. Stakeholders will thus have to adjust their expectations of global state funds. If political pressures result in fund managers taking on more risk, capital erosion might result. While seizing opportunities by leveraging its "extensive networks, internal capabilities, collaboration and deal execution abilities", as the GIC puts it, the group should stay anchored to its mission of achieving good returns over the long term.
A steady hand at the helm matters as the GIC is among the world's big state funds - its precise heft is kept confidential as the currencies of small nations might wind up as targets of speculative attacks during troubled periods. Without other resources to fall back on, the safety of the nation's reserves is a key concern. And without the contribution of returns from foreign investments, social and economic programmes might have to be scaled back. Striking the right balance between caution and gumption will test GIC's senior team as time, tide and markets wait for no man.
Still, despite falling yields, the team should stay true to the long-term approach it adopts to investment. That allows it to buy at lower prices to hold, when others are frantically selling to cover short-term positions. And when markets get excited, it can take reasonable profit and not get burnt by sudden market changes.
