Singapore's Sovereign-Wealth Fund Sees Lower Returns Ahead
July 27 2016 - 7:20PM
Dow Jones News
SINGAPORE—Singapore's over $300 billion sovereign-wealth fund
sees no end in sight for the era of low returns as anemic interest
rates and sluggish growth weighed on one of the world's biggest
state funds.
"These difficult investment conditions can stretch for the next
10 years," said Lim Chow Kiat, GIC Pte. Ltd.'s chief investment
officer, on Wednesday.
The sovereign-wealth fund, charged with managing the country's
foreign-exchange reserves, said in its annual report that it earned
a 3.7% annualized nominal rate of return over the past five years
through the end of March. That compares with a 6.5% return for the
five years through the end of March 2015.
GIC is one of the world's biggest sovereign funds and has parked
more than one-third of its investments in the U.S. It owns big
stakes in Citigroup Inc. and UBS Group AG, which it collected when
those banks raised funds during the global financial crisis.
Many global funds like GIC have seen the value of their holdings
rise since the global financial crisis as central banks pursued
cheap-money policies that boosted asset prices. Now, those same
policies have crimped their expectations for returns.
"We are running a more defensive portfolio," Mr. Lim said.
GIC boosted its holdings of bonds and cash to 34% at the end of
March from 32% the prior year. It cut exposure to developed stock
markets to 26% from 29% in the prior year and slightly increased
its holdings of emerging-market stocks, to 19% from 18%.
Investments in private equity and real estate accounted for 9% and
7% of its portfolio, respectively, both unchanged on a year
earlier.
"The steady returns delivered will be challenged by
uncertainties brought on by the low-yield environment all investors
are facing," Mr. Lim said.
Other sovereign funds, which manage some of the largest
portfolios in the world, have also warned of tougher times ahead.
Norway's nearly $900 billion fund, the largest of its kind,
recorded its weakest performance last year since 2011, blaming low
returns partly on slowing growth in emerging markets.
GIC oversees about $344 billion in assets, according to the
Sovereign Wealth Fund Institute, making it the world's
eighth-largest sovereign fund.
The Americas remain GIC's biggest investment destination,
accounting for 42% of its assets, while Japan accounts for 11% and
the rest of Asia around 20%. The fund's allocation to these regions
didn't change substantially in the past year.
GIC doesn't provide a specific outlook for its own investments
but illustrates its performance against a so-called reference
portfolio that represents the risk profile the Singapore government
is prepared to take, comprising 65% U.S. equities and 35% U.S.
bonds. The fund said it expects such a portfolio to return 1%-2% in
real terms over the next 10 years, well below its historical
average of 5.2%.
GIC doesn't disclose specific investments in its results, but
the Singapore fund has been an active investor in deals in sectors
including infrastructure, property and technology. In April, GIC
entered into an agreement to buy a 19.9% equity interest in ITC
Holdings Corp., a U.S. based independent electric transmission
company for about $1.23 billion. In June, GIC along with Temasek
Holdings Pte. Ltd. acquired shares of Chinese internet giant
Alibaba Group Holding Ltd. sold by Japan's SoftBank Group Corp. and
totaling $1 billion. In June, the company agreed to buy shares in
Irish telecommunications group Eir that valued the firm at around
$4 billion.
"Even as we expect the real returns for the GIC portfolio to be
lower going forward, we aim to take advantage of our long-term
horizon, skills and global reach to find attractive investment
opportunities," Mr. Lim said.
The sovereign-wealth fund measures its own performance over the
long term. GIC said its investments gave it a 4% annual real rate
of return over the 20-year period that ended March 31, or a 5.7%
return over the same period in U.S. dollar terms. That is lower
compared with last year, when GIC reported a 4.9% annual rate of
return for the 20 years ending March last year, or 6.1% in U.S.
dollar terms. All figures are above the global inflation rate.
Write to P.R. Venkat at venkat.pr@wsj.com and Jake Maxwell Watts
at jake.watts@wsj.com
(END) Dow Jones Newswires
July 27, 2016 19:05 ET (23:05 GMT)
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