Singapore's GIC reports improved long-term gains but tougher times ahead

Singapore's GIC Pte. Ltd. Thursday reported a strong rise in its long-term investment returns as of the March 31 close of its latest fiscal year while warning the investment environment will be considerably less friendly over the next decade or more.

With an investment portfolio estimated at well over $300 billion, GIC reported Thursday that its Singapore dollar returns for the 20 years through March 31 improved to an inflation-adjusted 4.9%, up dramatically from its 4.1% tally for the two decades through March, 2014.

The sovereign wealth fund's latest annual report noted that extraordinary monetary policy easing following the global financial crisis has done more to boost asset prices than underlying economic conditions, leaving investors facing the prospect of “low returns over the next five to 10 years.”

While GIC's latest investment returns have been favorable, “the results underline the point that to benefit from long-term investing, we have to be prepared to tolerate short-term unrealized losses,” the report said.

For the five years through March, 2014, the GIC's annualized gains for successive rolling 20 year periods – the fund's preferred span to judge long-term results – didn't moved more than 0.1 percentage point for any given year. Over those five years, GIC's successive 20-year returns have been 4.1%, 4.0%, 3.9%, 3.9% and 3.8%.

The annual report's fiscal year end snapshot of GIC's investment portfolio suggested that asset allocation changes didn't drive the improvement in the fund's long-term numbers.

As of March 31, 2015, the fund was allocating 29% of its portfolio to developed market equities; 18% to emerging market equities; 32% to nominal bonds and cash; 5% to inflation-linked bonds, 7% to real estate and 9% to private equity – unchanged from the prior year, except that emerging markets equities claimed one percentage point more at 19% and nominal bonds and cash one point less at 31%.

The fund's investments by geography were likewise fairly stable, with Asia up 3 percentage points at 30%, the Americas up one point at 43%, Europe down 4 points at 25% and Australasia steady at 2%.

Asked about the relatively strong improvement for the fund's annualized, long-term results, Lim Chow Kiat, GIC's group chief investment officer, in an email, said “Broadly, the equity market has done exceptionally well, especially developed market equities,” which comprise the largest component of the GIC portfolio.

In addition, “as our returns are on a rolling 20-year basis, we also have to take into account the year that was dropped off,” as well as the year that came in, he said.

The fund, launched in 1981, doesn't report annual results or disclose the size of its portfolio.