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Asset Owners

Singapore’s GIC reports drop in long-term returns, predicts harder times to come

Singapore's GIC Private Ltd. announced annualized inflation-adjusted returns of 3.7% for the 20 years through its March 31 fiscal year close, a decline from 4% the year before.

The sovereign wealth fund attributed that drop to the fact that the year, ended March 31, 1997, dropping out of the latest tally was one of high investment returns, at the start of the U.S. tech market bubble.

In its latest annual report, released Monday, GIC said a global investment environment marked now by artificially high valuations and low growth prospects will leave that 20-year figure — GIC's preferred gauge of long-term investment acumen — trending lower in coming years.

For the past decade, GIC has declined to reveal the size of its investment portfolio, beyond saying it is well over $100 billion. Market veterans believe it is well in excess of $300 billion currently.

GIC CEO Lim Chow Kiat, in the annual report, said amid a significantly diminished universe of high-return opportunities, GIC's portfolio is positioned for a period of "protracted uncertainty and low returns."

The annual report predicted GIC's passive reference portfolio, with weightings of 65% to global equities and 35% to global bonds, is likely to see real returns of only 1% to 2% a year over the coming decade.

On the bright side, Mr. Lim said GIC's investment team should be able to capitalize on "short-term dislocations" along the way.

But the sovereign wealth fund's latest asset allocation figures offered no evidence of big tactical moves over the past year.

GIC's allocation to defensive nominal bonds and cash stood at 35% of the portfolio, up from 34% the year before and well above the 25% to 30% target range prescribed by the sovereign wealth fund's policy portfolio.

Allocations to inflation-linked bonds held steady at 5%.

GIC's alternative allocations, meanwhile, remained considerably underweight. Private equity and real estate came to 9% and 7% of the portfolio respectively, both unchanged from the year before. GIC's policy portfolio targets allocations of 11% to 15% for private equity and 9% to 13% for real estate.

Allocations to publicly traded equities edged down one percentage point to 44%, with developed market equities rising one point to 27% and emerging markets equities dropping 2 points to 17%.

The annual report noted GIC's policy portfolio asset mix deviates from its reference portfolio in expectations of superior returns over a 20-year period.

For the latest 20-year period through March 31, however, GIC reported the nominal return for its portfolio, at 5.7%, trailed the 6.1% return for its reference portfolio. By way of partial explanation, the annual report noted GIC had kept as much as 30% of its portfolio in cash as recently as the late 1990s.

For the five years through March 31, meanwhile, nominal annualized returns of 5.1% for GIC's portfolio trailed its reference portfolio returns of 6%. In the annual report, GIC said that shortfall reflected a relatively low weighting to developed market equities during a period when developed market equities performed "particularly well."

The geographic distribution of GIC's investments likewise remained little changed.

The U.S. accounted for a leading 34% portfolio weighting, unchanged from the year before, as was the eurozone, at 12%; the Middle East, 6%; Latin America, 3%; and Australasia, at 2%.

Asia ex-Japan and the U.K., meanwhile, dropped 1 percentage point each to 19% and 6% respectively, while Japan and North America, ex-U.S., both gained a point to 12% and 6% respectively.

Mr. Lim noted that starting April 1, GIC had tapped Deanna Ong for the new position of chief people officer, heading the sovereign wealth fund's efforts "to attract, develop and retain the best talent for a high-performing organization." Ms. Ong previously had served as managing director, human resource and organization.

Likewise, he noted the addition to GIC's international advisory board, also starting April 1, of Mark Krtizman, CEO of Boston-based Windham Capital Management, and Mohamed El-Erian, chief economic adviser at Allianz.