Singapore sovereign fund GIC changes investment strategy
Firm to split portfolio into actively managed portion and one that tracks the market
GIC, manager of more than US$100 billion of Singapore's reserves, is changing its investment strategy for the second time in three decades to be more flexible as the global outlook becomes "complicated".
The firm will split its portfolio into one that is actively managed and another that tracks the overall market, it said as its annual report showed returns were little changed.
GIC did not say how much of the assets would be managed or indexed against the market.
"In the past 30 years, if you put money into stocks or bonds, you just rode the wave of declining interest rates and made money," Leslie Teo, chief economist at the sovereign wealth fund, said on Thursday, when GIC's annual report was released.
"In the future, things won't be so straightforward. Market returns will likely not be as high. Investors will need to be more nimble, and skill-based active management may be an additional source of returns."
The change gives GIC room to shift funds across asset classes as it adapts to challenges after the 2008 global financial meltdown, the European debt crisis and China's growth slowdown restricted investment gains. It will also allow the fund to better manage its portfolio amid rising bond yields as the US Federal Reserve considers tapering stimulus with the economy recovering.
The company was set up in 1981 as a "contingency fund" with a portfolio that was as much as 70 per cent invested in bonds and cash, before a review in 2000 defined it as a "financial endowment", after which equities accounted for 65 per cent of holdings, it said.
GIC's 20-year annualised real rate of return, or gains on top of global inflation that it uses as its main metric, was 4 per cent as of March 31, up from 3.9 per cent the previous year, it said in its annual report.
The MSCI World Index gained 9.3 per cent during GIC's fiscal year.
We are not aiming for higher risk in our ... investment process
"Through the new strategy, we are not aiming for higher risk in our overall investment process," chief investment officer Lim Chow Kiat said. "We are just clarifying which returns stem from the market and which are based on particular investment skills."
The annualised nominal rate of return in US dollar terms over 20 years was 6.5 per cent, underperforming a portfolio GIC had created as a benchmark with 65 per cent of holdings in stocks and 35 per cent in cash, it said. The fund does not release yearly return figures.
