Government of Singapore Investment Corp., manager of more than US$100 billion ($132.2 billion) of the city-state’s reserves, said it is seeking more flexibility in its investments as it expects more market volatility.

 

The management, with the approval of the board, will be able to “make calibrated departures” from its asset allocation strategy over the medium term, or within five years, it said in its annual report today.

 

GIC, ranked the world’s sixth-largest state investment company by Sovereign Wealth Fund Institute in California, said it will continue to increase its investments in higher-growth emerging economies, especially in Asia, as expansion in developed nations slows. Its holdings in the U.S. fell to 36% of its portfolio in the year ended March 31, from 38% the previous year, according to its annual report.

 

“They’re trying to manage different time periods of investments,” said Rachel Ziemba, London-based senior analyst at Roubini Global Economics. “On the one hand, they’re an investor with a long-term time horizon; on the other hand some of the dynamics of public asset markets are such that there’s a risk of getting whiplashed by some of the moves in the market.”

 

Annual returns in the past 20 years averaged 7.1% in U.S. dollar terms, compared with 5.7% in the previous fiscal year, GIC, established in 1981, said in the report. The real rate of return, in excess of global inflation, rose to 3.8 % from 2.6 %. GIC didn’t give the value of its assets or how much they rose or fell.

 

“GIC can respond more flexibly to significant risks or opportunities, which are likely to emerge from time to time in an environment of greater uncertainty,” said Chief Investment Officer Ng Kok Song in the report.

 

The 20-year annualized return at Temasek Holdings, the city-state’s other investment firm that manages $186 billion, was 14% in the 12 months to March 31.

 

The MSCI World Index rose 49% in the 12 months to March 31. It has since lost 1.2% on concern that the European debt crisis would deepen and the global economic recovery is faltering.

 

“While the global economy is experiencing a rebound, the recovery path beyond this year is subject to significant uncertainties,” GIC Deputy Chairman Tony Tan said in the report. “The financial landscape has become more volatile, with more uncertainty and tail risk.”

 

Sovereign risks have increased especially in Europe and asset price bubbles could be threats in emerging markets, Tan said in the report. There also is a risk that the developed world will swing toward protectionism, he said.

 

“There’s a lot of uncertainty clouding the global outlook; that should translate into volatility in asset prices,” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “But the global economy can continue on a recovery trajectory and that should be supportive for the asset holdings of GIC.”

 

GIC’s holdings of developed market equities rose to 41% of its portfolio as of March 31, from 28% a year earlier, it said. The fund repurchased shares of companies in developed markets from early 2009, after selling them from July 2007 to September 2008 because it was concerned about the overvaluation of risk assets, according to the report.

 

Its allocation to alternative investments -- including real estate, private equity, infrastructure and natural resources -- fell to 25% of its portfolio, from 30%.

 

Global Logistic Properties, the overseas logistics unit of GIC, aims to raise as much as $3.4 billion in Singapore’s biggest initial public offering since 1993, it said in a prospectus posted today on the Monetary Authority of Singapore website.

 

GIC bought stakes in Citigroup Inc. and UBS AG in 2008 as the collapse in the U.S. subprime mortgage market in 2007 froze credit markets and led to about US$1.8 trillion in losses and writedowns at financial institutions worldwide.

 

GIC’s assets fell more than 20% in the year to March 31, 2009. The fund said in March this year it completed the conversion of 11 billion Swiss francs ($14.8 billion) of notes in UBS into stock, becoming the Zurich-based bank’s biggest shareholder with at 6.6% stake.

The fund said it will open an office in Mumbai in the next quarter.