GIC more cautious in going for higher returns

Published on May 22, 2013

Chief investment officer prepares for 'end game'


THE Government of Singapore Investment Corporation (GIC), which manages more than US$100 billion (S$125 billion) of assets, said it is more cautious about seeking higher returns as yields remain low ahead of the "end game" in the next five to 10 years.

The average annual return on bond yields will be about 1.9 per cent over the next decade, while equities may offer a 1.6 per cent median real return a year during that period, said the fund's chief investment officer Lim Chow Kiat, citing different portfolio models.

"We are getting more cautious in reaching out for higher-yielding assets," Mr Lim, who assumed his position in February, said yesterday. "No one can predict when the end game will be, but we can prepare for it."

Central banks are pressing down on benchmark borrowing costs, leading investors to seek higher-yielding assets outside of government bond markets. US 10-year rates fell to an all-time low of 1.38 per cent in July, and the Standard & Poor's 500 Index rallied to a record this week.

"Central banks will find it hard to exit from this quantitative easing policy," Mr Lim said, adding that "substantial risks remain".

Investors have had "largely good returns" over the past three decades, he said, and they are seeing the latest part of a 30-year credit expansion cycle with low interest rates.

"We see bubbles everywhere," Mr Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management, said on Bloomberg Television last week. "As long as the Fed and the Bank of Japan and other central banks keep writing cheques and don't withdraw, then the bubble can be supported."

GIC said last July its cash allocation almost quadrupled to 11 per cent of its portfolio in the year ended March from 3 per cent a year earlier. Stock holdings fell to 45 per cent from 49 per cent as it pared equities in developed markets, while bond investments dropped to 17 per cent from 22 per cent, it said in its annual report.

The so-called 20-year annualised real return was 3.9 per cent as of March last year, unchanged from the previous year, it said. The annualised nominal rate of return in US-dollar terms was 3.4 per cent over five years, 7.6 per cent over 10 years and 6.8 per cent over 20 years, it said. GIC does not report an annual return or disclose the actual size of its portfolio, and is expected to release its next performance figures for the year ended March in July.

"As prices of risk assets improve, there are more pressures and temptations to reach out," said Mr Lim, 42, who previously oversaw GIC's investments and relationships in Europe, Africa and the Middle East.

He said there are investment opportunities in technology, such as China's growing online retail market, and the rising middle class in emerging economies. About one in two middle-class consumers will come from Asia in seven years.

"Though valuations are not low currently, longer-term prospects are not to be missed," he said.
GIC is ranked the world's eighth-largest government investment fund by the Sovereign Wealth Fund Institute, which estimates it manages US$247.5 billion.

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