SINGAPORE – Sovereign wealth fund GIC steered through the turbulence of the pandemic to rack up its best performance since 2015.
It recorded an annualised rolling 20-year real rate of return of 4.3 per cent for the period ending March 31 – higher than global inflation and well up on the 2.7 per cent annualised return for the previous financial year.
The fund measures its performance by evaluating returns over a 20-year period, which started in April 2001 for the financial year just ended.
GIC’s robust performance means that Singapore’s foreign reserves under its care could potentially contribute more to its coffers in a year when the Republic has projected a budgetary deficit of $11 billion.
The fund is one of the three entities tasked to invest Singapore’s reserves, with part of its returns tapped every year for the annual Budget.
Under the Net Investment Returns Contribution (NIRC) framework, the Government can spend up to half of the long-term expected investment returns generated by GIC, the Monetary Authority of Singapore and state investor Temasek.
The NIRC continued to be the largest contributor to government coffers and is estimated to chip in with $19.6 billion for financial year 2021. The significance of Singapore’s reserves was outlined in the country’s Budgets this year and last, with the government drawing on past reserves to fund public spending amid the Covid-19 pandemic.
GIC chief executive Lim Chow Kiat told a virtual briefing yesterday that the increase in real return over the most recent 20-year period was in part due to how it is calculated, as a “poor year” 21 years ago dropped out of calculations. At the same time, the most recent financial year enjoyed a strong performance.
“Almost all the risk assets (did) really well, and even those assets which (saw direct) negative impact from the pandemic actually held up reasonably well,” he said, referring to the portfolio’s contribution in the last financial year.
The increase in GIC’s 20-year real rate of return for the most recent financial year mirrored the rebound Temasek recorded in the year ending March 31. Its one-year shareholder return came in at 24.53 per cent, helping to drive its portfolio value to a record $381 billion.
The share of emerging markets equities in GIC’s portfolio rose to 17 per cent compared with 15 per cent in the previous year while the allocation to nominal bonds and cash fell from 44 per cent to 39 per cent.
Meanwhile, the allocation to Asia excluding Japan accounted for 26 per cent of the fund’s geographical mix, up from 20 per cent a year earlier. Around 34 per cent of GIC’s assets are based in the United States, which continued to be its largest region by exposure.
Group chief investment officer Jeffrey Jaensubhakij said the attractiveness of Asian debt and the more competitive valuations of companies compared with their peers in Western markets accounted for the increased allocation to the region.
He noted that some of the central banks in Asia are paying a higher interest rate and their more conservative approach is “more attractive”.
GIC is not the only investor that has noticed this trend, Dr Jaensubhakij said, adding: “There’s been a lot of inflow in Asian government debt, particularly Chinese debt, over the last year.”
Mr Lim also addressed concerns that the tech crackdown in China could impact the fund’s investments in the country, noting: “We continue to see China offering good prospects in terms of returns – the growth is good, and the corporate sector continues to develop, innovation continues to happen.”
GIC’s annual report said it is cautious on its macro outlook but positive about micro prospects, especially with new areas of growth that are driven by increasing emphasis on sustainability, technological transformation and growing needs for businesses to reconfigure their supply chains.
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