Singaporean sovereign wealth fund giant GIC Private Ltd. saw its investment gains grow to their slowest in four years on Wednesday, expecting investment challenges to continue due to high interest rates, China’s struggling economy, and geopolitical conflict.
The firm’s key investment return gauge showed that its 20-year real return increased by 3.9%, compared to the 4.6% rise in the previous year. The reading was the weakest since the company logged a 2.7% return in 2020.
The fund cited its strong fiscal 2004 being out of the equation as one reason. The year saw equity markets recover significantly after the dot com bubble burst.
GIC stated that the solid period sharply contrasted its performance in recent years due to weak fixed income and global equity returns, mainly in developed markets, which accounted for 13% of its portfolio.
The firm has been underweighted in emerging equity markets at the same level as the year prior, resulting in weaker returns despite the soaring US and Japanese stock markets. In the five years ending March 2024, the S&P 500 and Nikkei 225 index gained 85% and 90%, respectively.
The company does not publish its annual results or the value of its assets under management (AUM).
GIC Expects Challenging Investment Environment to Stay
Moving forward, GIC expects investment gains to be curbed by extended periods of higher interest rates, China’s economic challenges related to its property sector crisis, and geopolitical tensions.
Medium-term return potential also remained low, according to the fund, while risk-reward was not as optimistic, considering high valuations in various risk assets, particularly in developed markets.
Still, the firm’s chief executive, Lim Chow Kiat, said they anticipate prospects in the US, where GIC has the most exposure, no matter the results of the 2024 presidential elections.
By the end of March, around 39% of the fund’s total investment portfolio was in the US alone, compared to the 38% logged in the same period in 2023. Its holdings in Asia for the period hit a more than decade low of 26%, while its Japanese exposure continued to weaken, representing 4% of its portfolio.
The company’s share in the UK and Eurozone was up 5% and 10% in the year ending March, from 4% to 9%, respectively. It does not disclose holdings in China.
With sluggish growth in the world’s second-largest economy, GIC stated that it was being more careful and exploring opportunities in ventures, including advanced manufacturing, industrials, and residential-for-rent, to minimize its exposure to areas with possibly unfavorable supply-demand outlooks.
