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GIC emphasises resilience of long-term real returns amidst challenging market conditions

Bryan Wu
Bryan Wu • 3 min read
GIC emphasises resilience of long-term real returns amidst challenging market conditions
GIC says its mandate is to “preserve and enhance” the international purchasing power of Singapore’s reserves under its management over the long term. Photo: Bloomberg
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Over the 20-year period ended March 31, GIC’s portfolio achieved an annualised US dollar (USD) nominal rate of return of 6.9%. After accounting for global inflation, GIC’s annualised real rate of return stood at 4.6% over the same period.

In a media statement on July 26 following the release of its annual results, GIC emphasises that this average annual rate of return, achieved from between April 2003 and March 2023, is “over and above” the rate of global inflation.

According to GIC, this rolling 20-year real rate of return should be the “primary metric” for evaluating its investment performance, as it is in line with GIC’s mandate to “preserve and enhance” the international purchasing power of Singapore’s reserves under its management over the long term.

In essence, this means achieving good long-term returns over global inflation, says the sovereign wealth fund.

“In an era of continued uncertainty, increasing the resilience of our portfolio is a key focus. This is why we had raised liquidity and focused on finding investment opportunities with stable long-term returns, including investments in real estate and infrastructure to protect our portfolio from inflation,” says CEO Lim Chow Kiat.

This “growing infrastructure strategy” will create diversification and provide steady, inflation-protected returns, according to GIC. “The long-term compounding effect of these returns will enable us to deliver resilient real long-term returns amidst a challenging environment,” adds Lim.

See also: Singapore economy expected to grow by 2.7% y-o-y in 2Q2024

According to a Financial Times (FT) report also released on July 26, GIC is warning that many of the tailwinds for private equity firms “have come to an end” as a golden age is replaced by tougher market conditions.

Market volatility, higher interest rates and falling valuations have left the private equity industry struggling to raise money this year with investors already overallocated to the asset class as public market valuations have fallen relative to the value of private holdings, says FT.

Already, fundraising across private markets is on track this year to fall almost 30% compared with 2022, according to a report released this month by Bain & Co.

See also: MBS operator Las Vegas Sands plans entertainment-focused expansion in Singapore

But GIC could increase its private market exposure over the year ahead given the right investments, with the “fundraising drought” in the sector “an area of opportunity”.

It adds that it is taking steps to deepen “sustainability integration” into its investment and corporate processes.

“We see expanding opportunities in the green transition space, and are confident that the new teams, as well as all other investment teams, will further integrate sustainability factors into GIC’s investment and corporate processes,” he says.

Looking ahead, the sovereign wealth fund chaired by Prime Minister Lee Hsien Loong says the overall outlook for the next 12 months continues to be challenging amid a higher interest rate environment, “chronic geopolitical risks”, as well as higher risks of a recession.

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