SINGAPORE (July 10): Singapore’s sovereign wealth fund, GIC, has reported an annualised real return of 3.7% above global inflation for its portfolio over the 20-year ended March 31.

This is lower than the 4% posted in 2016 as well as the average 20-year return of 5.1% from 1900-2017.

Although it measures returns over the long-term, the rolling 20-year rate of return – a primary metric for evaluating the fund’s investment performance – can reflect a significant cyclical element, says GIC in its latest investment report for 2016/2017.

According to GIC, this year’s decline was due to the drop-off of the high returns at the beginning of the tech bubble in the late 1990s-early 2000s, an effect which it expects to continue for a few years to continue dampening the rolling 20-year figure.

The 3.7% rate of return, however, also means that GIC has enhanced its portfolio by an average of 3.7% above the global inflation rate between April 1997 and March 2017 – suggesting that purchasing power of funds invested with GIC in 1997 has more than doubled.

In USD terms, the portfolio’s 20-year nominal return was 5.7% despite its more conservative risk appetite during the earlier years, which included poor market performance due to the Global Financial Crisis and European Debt Crisis.

Over the five-year period, the portfolio returned 5.1% per annum in USD nominal terms as a result of the run-up of global financial assets, buoyed by the implementation of aggressive non-conventional monetary policies.

Noting high valuations across most major asset classes as well as the expectation of modest economic growth and earnings, the investment firm adds that it expects real returns for the GIC portfolio to be lower in the coming years.

In particular, it projects its reference portfolio to see real returns at round 1-2% over the coming decade.

Even as the increased uncertainty warrants caution, GIC says there may be selective situations offering attractive returns, while the currently-high levels of uncertainty may open up opportunities.

“We are prepared for a period of protracted uncertainty and low returns. A key part of GIC’s investment strategy in such an environment is to ensure that the GIC Portfolio remains robust across a range of plausible scenarios,” says GIC CEO Lim Chow Kiat in a Monday release.

“This means the portfolio needs to be diversified along multiple dimensions such as asset classes, regions, return drivers and risk thresholds. As a long-term value investor, we remain cautious and recognise that to generate good real returns over time, we have to be prepared for periods of underperformance relative to the market indices, some even for a stretch of several years.”

Expect lower portfolio real returns in the coming years: GIC   

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