GIC Has 4.1% Annualized Return, Warns of Lower Asset Gains

Aug 01, 2014 10:23 pm ET

(Updates with investment in Flipkart.com in sixth paragraph.)

Aug. 2 (Bloomberg) -- GIC Pte, manager of more than $100 billion of Singapore’s reserves, posted an annualized return of 4.1 percent and warned that the current high prices in financial markets signal a challenging outlook.

GIC’s 20-year annualized real rate of return, or increases on top of global inflation it uses as its main metric, as of March 31 compared with 4 percent the previous year, the fund said in the annual report published today. The sovereign fund declined to elaborate on specific holdings.

The MSCI World Index, which tracks stocks in 23 developed countries, gained 17 percent during the period, the most in four years, as central banks worldwide kept interest rates low to fuel growth. Citigroup Inc., of which GIC owns 3.7 percent according to data compiled by Bloomberg, gained 7.6 percent in the period. Switzerland’s biggest bank, UBS AG, in which GIC is the biggest owner with 6.4 percent, rallied 26 percent.

“Asset prices are high relative to the fundamentals; that means we need to be more cautious in terms of expecting future returns,” Lim Chow Kiat, the sovereign wealth fund’s chief investment officer, said in an interview yesterday. “Many economies are still highly dependent on central bank policy. That presents another challenge for investors.”

GIC is more “positive” on emerging-market assets going forward, Lim said, citing valuations and progress in reforms in countries including China, India, Indonesia and Mexico.

Singapore’s sovereign wealth fund was among the investors in India’s biggest online retailer, Flipkart.com, which on July 29 said it raised $1 billion.

Developed, Emerging

Holdings in developed-market equities declined to 29 percent from 36 percent, according to the statement. The drop is overstated due to a reclassification, the fund said.

Investments in emerging-market stocks increased to 19 percent from 17 percent, GIC said in the report. Nominal bonds and cash accounted for 31 percent, compared with 29 percent. The share of inflation-linked bonds increased to 5 percent from 2 percent. The share of real estate declined to 7 percent from 8 percent, the fund said. The allocation to private equity climbed to 9 percent from 8 percent.

The state fund’s annualized nominal rate of return in U.S. dollar terms over 20 years was 6.5 percent, unchanged from the previous year. That compares with a 7.2 percent return in GIC’s reference portfolio with 65 percent of holdings in stocks and 35 percent in bonds, it said.

The Standard & Poor’s 500 Index rallied 19 percent in the year ended March, while the Stoxx Europe 600 Index climbed 14 percent, outpacing the 1.8 percent return for the MSCI Asia Pacific Index. The Singapore benchmark stock gauge lost 3.6 percent in the year.

Beating Portfolio

Over the past decade, GIC’s 7 percent return in U.S. dollar terms beat the reference portfolio’s 6.7 percent gain, it said. The fund, which is owned by the government, doesn’t release yearly return figures or the size of its assets under management.

GIC is the world’s fifth-biggest state fund with estimated assets under management of $315 billion, according to the website of the London-based Institutional Investor’s Sovereign Wealth Center.

Temasek Holdings Pte, Singapore’s state-owned investment company that’s operated separately from GIC, last month reported a total shareholder return of 1.5 percent for the fiscal year ended March 31, down from 8.9 percent in the previous period.

GIC almost exclusively invests outside the city-state and has a lower share of listed equities in its portfolio compared with Temasek.

Property Acquisitions

Property acquisitions were among GIC’s biggest transactions in the year ended March.

The state fund bought Blackstone Group LP’s 50 percent stake in London’s Broadgate office complex. It also teamed up with U.S. property developer Related Cos. and the Abu Dhabi Investment Authority to purchase the headquarters space at Time Warner Inc. in New York City’s Columbus Circle for $1.3 billion.

GIC did several transactions in Brazil, where it opened an office in May this year. The state fund bought 5.02 percent of communications technology provider Linx SA and increased its stake in Sao Paulo-based food processor BRF SA in March. In October it agreed to invest in water and sewage treatment company Aegea Saneamento e Participacoes SA.

(An earlier version of this story was corrected to say that GIC’s reference portfolio includes bonds and not cash.)