Singapore’s sovereign wealth fund posted its highest rate of return in six years and expressed caution over rising inflation and a potential deterioration in the coronavirus pandemic.
GIC reported an annualised 20-year real rate of return, its main performance metric, of 4.3 per cent for the year until the end of March, the highest since 2015, when it posted returns of 4.9 per cent.
Some assets’ strong performance during the pandemic and exits through initial public offerings by portfolio companies such as US food delivery app DoorDash contributed to the jump, said Lim Chow Kiat, GIC chief executive.
The fund expects a global recovery to continue in the near term, with a “sharp growth rebound” in China and the US, central banks maintaining loose monetary policy and low interest rates and countries starting to deploy fiscal stimulus unleashed during the pandemic, said Jeffrey Jaensubhakij, GIC chief investment officer.
But GIC is more “cautious” longer term, he added. High valuations for assets including equity, real estate and infrastructure were “in contrast with some uncertainty in the environment”.
He warned that the potential threat of a new variant of coronavirus “that could break through the vaccines in a more meaningful way” had not been priced in.
Rising inflation — which in the US is showing signs of not being temporary — is also of concern. “We do think that there is a risk of higher bond yields over the next few years,” said Jaensubhakij.
This is in part why the fund is keen on private market asset classes including real estate and infrastructure that offer relatively higher yields at a time when bond prices could drop as inflation grows.
GIC, which does not publish its assets under management except to say they are “well over $100bn”, grew its exposure to private equity to 15 per cent in the 12 months to the end of March, from 13 per cent and 12 per cent in 2020 and 2019, respectively.
The hunt for yield also contributed to the drop in GIC’s exposure to Japan from 13 per cent to 8 per cent in the year through March as the fund snapped up fixed income products with more attractive returns in other Asian markets including China.
Asia excluding Japan took 26 per cent of GIC’s portfolio, up from 19 per cent a year earlier. Assets’ value at the end of the financial year also dictates the geographic breakdown.
The fund — which was caught up in the last minute suspension of Ant Group’s $37bn IPO in November — said it remained committed to China, despite regulatory crackdowns targeting tech companies.
Shares in Didi, the Chinese ride-hailing app, have plunged after it was hit by a domestic regulatory investigation days after its $4.4bn New York listing this month, while bankers are scrambling to reroute Chinese companies’ IPOs to Hong Kong after Beijing announced it would tighten restrictions on overseas flotations.
“China remains a very important market for GIC,” said Lim.
Jaensubhakij added that while the fund had been “definitely impacted” by these regulatory changes, they were “part and parcel” of environments companies operate in.
Examples of interesting Chinese assets included tech companies that have not grown enough to trigger regulatory concerns or larger players that have not yet “fully monetised” their operations, he said.