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Monday, 10 July 2017

GIC prepares for protracted uncertainty, low returns

It asks to be prepared for underperformance relative to market indices, posts 20-year real return at 3.7% for FY17

AT a time of heightened uncertainty and "investor complacency", Singapore's sovereign wealth fund GIC is expecting steady long-term returns, and says it has to be prepared to take underperformance against relative benchmarks, with some stretching into several years.

The comments came as GIC reported a 20-year annualised real rate of return of 3.7 per cent above global inflation on its portfolio for the period ended March 31, 2017. This is a dip from the 4 per cent in the 20-year annualised real rate of return reported a year ago.

This means the purchasing power of funds invested with GIC in 1997 has more than doubled, with GIC currently having well over US$100 billion in assets under management. GIC is estimated to be the 10th largest global public investor in the Asia-Pacific, according to think tank Official Monetary and Financial Institutions Forum.

The portfolio returned 5.7 per cent per year in US-dollar terms over the past 20 years on a nominal basis.

GIC noted that the last 20 years have included two periods of very pronounced cycles. The first was the tech bubble in the late 1990s to early 2000s, while the second was the global financial crisis in 2008.

This year's decline in the 20-year real return was largely due to the drop-off of the high returns at the beginning of the tech-bubble period, while the ensuing collapse in values remains within the 20-year period. GIC expects this effect to continue for a few years, dampening the rolling 20-year figure.

In a statement, GIC chief executive Lim Chow Kiat said: "We are prepared for a period of protracted uncertainty and low returns."

He said a key part of GIC's investment strategy in such an environment is to ensure the portfolio remains robust across a range of plausible scenarios, translating to diversification across 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," said Mr Lim.

A combination of stretched valuations, high policy uncertainty and unresolved economic imbalances confronts investors today. Notably, the current market pricing does not reflect heightened uncertainty. Mr Lim said: "We are concerned about that. It seems to suggest that there is investor complacency."

Given this environment, GIC has guided that it expects one to 2 per cent real return over the coming decade.

GIC continues to build investments into infrastructure, with PwC estimating US$1.7 trillion in global infrastructure spending through to 2020. GIC was part of a consortium that bought and delisted UK water utility company Kelda Group in 2008. In 2016, it bought 19.9 per cent of United States' largest independent electric transmission company ITC Holdings from Canada's Fortis Inc for US$1.23 billion.

But Jeffrey Jaensubhakij, group chief investment officer of GIC, noted that for many countries, many infrastructure projects still remain owned by the governments, leaving little room for private investors.

In places such as Australia where there is more active privatisation in the infrastructure market, sky-high demand for the assets is translating to very expensive prices.

"In emerging markets, most of the assets are still government-owned and operated. We still need to see a period of time where governments decide to privatise the assets," he said.

GIC continues to see opportunities in the student-housing market where it is among the top global investors. GIC and Singapore's Mapletree Investments have helped to push acquisitions in student housing to a record US$16.2 billion last year, data from Real Capital Analytics Inc, as cited by Bloomberg, showed.

GIC pursued more investments this year. In March, GIC with the Canada Pension Plan Investment Board and The Scion Group jointly acquired three US student-housing portfolios for about US$1.6 billion.

Mr Lim noted that there remains more focus on the student-housing segment in developed markets, as students head to top schools in certain parts of the world.

"We are always on the lookout for assets which can help us to produce a different kind of return stream and student housing is one of those. We expect to continue to be active in the student-housing market," he said.

Mr Lim said in the technology space, GIC is clear there is a "winner takes all" outcome that makes picking the right asset more important and more difficult as well.

In the last few years, the valuation of tech assets has gone up substantially compared to other sectors, though Mr Lim said there is no "bubble territory" for the sector, overall.

GIC's proportion of investment in its six asset classes was fairly unchanged from a year ago.

Investments through private equity stood unchanged at 9 per cent. Likewise, investments in real estate were maintained at 7 per cent, and investments in inflation-linked bonds kept at 5 per cent.

The share of investments in emerging-market equities fell to 17 per cent from 19 per cent, while investments in nominal bonds and cash rose to 35 per cent from 34 per cent. Investments in developed-market equities made up 27 per cent of the total asset mix, up from 26 per cent a year ago.

CW : Not easy to make money from investing!

GIC forgot to employ our "Gurus" who boast 15% return 
to be their advisers?


  1. Congrats Uncle8888 for beating GIC returns!!! Kekekeke!!!

    You should show them your results ... Who knows? Maybe $100K per month retirement job!! Hahaha!!!

    Yup not easy to earn from investing ... even just beating the market is hard!!

    Look at Buffet --- as markets have become more efficient & liquid in recent years, his performance has also slowed down a lot --- nowadays machiam similar to passive market returns...

    Regarding Temasek's performance --- it's earlier 15% returns is kinda BS --- becoz it was literally given good solid GLCs at depressed prices by govt in the 1970s & 1980s. Any ordinary person will be able to beat the market simply by sitting on those companies & not doing anything.

    Now look at Temasek's recent performance 6% nominal --- it's actually underperforming an all equity benchmark (since Temasek's portfolio is almost all risk equity assets).

    Now looking at GIC's performance --- it can't even beat a dumb 65:35 passive portfolio over 20 years... Even though it has many investing experts easily being paid $10M to $20M a year.

    In other words, govt can save a hell lot of taxpayer money by simply using dumb passive indexing ... and spend only $100K a year instead of $100M a year hiring all those so-called investment experts.

    That's why Buffet keep on harping year-after-year for everyone (including pension funds & govt funds) to just save money & go with passive investing.

    On another note ... "GIC has guided that it expects one to 2 per cent real return over the coming decade"...

    Won't be surprised if CPF Act will be amended in future to lower the interest rates... Maybe finally implement the 10-yr SGS yield + 1% that they've been talking about for past 15 years.

  2. When that happens, will there be a run on the Banks(Err... i mean our CPF)?

    Unless the Banks' FD rate must be less than zero then by G's gazette?

    1. Hmmm, now 10-yr SGS yield is about 2.2%.

      So 10-yr SGS yield + 1% = 3.2%

      Bank FD still cannot beat lah ... Hahaha!!!!

      But I suspect govt & CPF may decide to go endowment or investment style of Malaysia, HK, and many other countries.

      Some years will be good if there's bull run ... But some years may be zero or even -ve if global recession.

  3. uncle888, thanks for share your return of last 17.5 years. the history is best teacher, your investment history thought me two things:
    a)based on my study, STI annualized return is 7.xx% (, beating index fund is really a challenge;
    b)an investor return has large dependency on the underlying market in the specific geography, if had you invested in CN market, i think you(assume you can read Chinese) could have achieved a higher return.

  4. The higher the volativity of a market, the naturally the gain or loss will be higher.

    In that sense HK EXC usually Beats SGX in most years.

    To me the most important lesson to learn from from the table is you won't believe people who promised you guaranteed return of anything 6 % p/a .
    Especially in today financial market environments.

    In fact anyone promises any guarantee for your investment, you better think more than twice.

    1. Uncle Temperament got the message from the Table LOUD and CLEAR!

      Any "Gurus" who can train anyone to compound their investment portfolio at 15% CAGR over decades; you also need to think twice before paying for your tuition or course fees.

      Buy few of us kopi and roti is lots lots cheaper and we talk personal experiences and encounter in the market.

  5. Oooh ... Uncle8888,

    Need to update ... latest 10-yr performance of Temasek Holdings...
    Apr 2007 to Mar 2017 --- 4.0% p.a.


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