Even by the secretive standards of sovereign wealth funds, GIC stands apart for its riches and discretion. It does not release annual returns and will not say how much it manages, though estimates from data providers put it as high as US$744 billion. New rules passed in parliament could raise that to almost US$900 billion, making it the third-largest fund of its kind after Norway and China.

Singapore’s ‘voracious’ GIC tops global list of most active state funds

GIC has posted a 6.8 per cent nominal gain each year over the past two decades, on par with several of its peers, according to Global SWF, a research firm. Long-term returns were boosted by a massive 38 per cent jump in the financial year that ended last March, Global SWF said.

“The important thing for GIC is to maintain steady investment returns,” said Lim Siong Guan, the former group president who helped shape its current strategy.

“It was he who sort of alerted us and said ‘the rise of China is irreversible,’” said Ng Kok Song, who stepped down as chief investment officer in 2013.

Pushing into China’s undeveloped markets was a tough ask. GIC scoured the country, backing everything from Shanghai office blocks and agricultural banks to toilet and washing-machine makers. The investments turned what started as a Western-centric fund into a diversified portfolio, with Asia now representing 34 per cent of holdings, matching the US.

Ultra-rich Asians eye Singapore luxury homes amid Covid-19 pandemic

“Certainly it’s a concern – if bifurcation is to happen, that will affect global investors because it makes it much harder for you to have that freedom to just pick and choose,” said Lim, 51, from GIC’s 37th-floor office in the business district.

China bull

Lim, an avid jogger who has been head of GIC for five years, remains bullish on China. He sees it as a source of growth and a countercyclical hedge to other markets. GIC is likely to buy more sovereign bonds, and has not been scared off by the recent defaults at China Evergrande Group and other property developers.

“We believe they have enough central bank balance sheet, and within their system they have enough levers to make sure that things do not spiral out of control,” Lim said. “They have the will to continue with reforms and opening up and that will provide future growth.”

Beyond China, inflation could have a big impact on GIC’s returns. Nominal bonds and cash made up 39 per cent of its portfolio as of March, with inflation-linked notes representing another 6 per cent. Lim said future returns “are likely to be lower”, casting doubt on the 60/40 stock-bond portfolio that has been a pension fund mainstay for years.

“If we feel that inflation is going to be a real sticky problem, then of course you have to start shifting your portfolio toward more inflation-protected assets,” said Lim, describing nominal bonds as the most vulnerable. “Within stocks, if you can find companies which have pricing power that will help,” along with commodities.

The new faces of hunger: inflation’s human cost, from Singapore to the Philippines

Another potential growth driver for GIC is the environmental, social and governance space. An internal ESG investment pool created in 2020 now has “billions of dollars” at its disposal, according to Liew Tzu Mi, head of fixed income and sustainability. In recent years, it has struck deals in areas like blue hydrogen and solar farm builders.

GIC backs polluters as long as they have a plan to become more sustainable. In recent years, it bought into natural gas pipelines, while holding a major stake in China Petroleum & Chemical Corp. Unlike Temasek, GIC has not set a 2050 net zero goal, arguing it would affect its ability to invest in countries like China and India that have later targets.

To help juice returns, the fund is also turning to private equity, almost doubling its allocation to 15 per cent since 2013. Global SWF estimates GIC deployed US$34.5 billion in 110 deals last year – its busiest ever – led by logistics and other real estate. That made it the top spending state-owned investor for the fourth-straight year, ahead of second-place Canada Pension Plan Investment Board. The Global SWF data combines sovereign wealth and public pension funds in their rankings.

“I would expect every year to continue to build on what we’ve been able to do,” said Eric Wilmes, who heads North American direct investments from San Francisco. “This isn’t a one-year trend or 18-month trend.”

Losing flexibility

GIC’s surging assets are both a strength and a problem. It means the fund has to strike bigger deals to maintain growth, and those can be hard to find. Many of its investment partners are also expanding, potentially shrinking its allocations on transactions.

“GIC may be growing too much and by growing too much, it may be losing flexibility as an organisation,” said Diego Lopez, managing director of Global SWF. “Is it better to split the investment units into pockets?”

Singapore’s GIC to invest US$500 million in Vietnam’s Vingroup

The shift to private equity highlights one of GIC’s conundrums – a sovereign fund in a country of just 5.5 million people must attract global talent to scout out deals. Of the more than 1,800 staff as of March, almost half were foreigners, up from about one-third in 2016.

Unlike many banks and private equity firms, GIC is known for its modesty and public-service ethos. Showing up to the office in a sports car attracts unwanted attention from colleagues, several current and former employees said, asking not to be identified. Lim’s predecessor was known to take the subway to work. In the official history of the fund, the minister who founded GIC is lionised for being so frugal he washed his own underwear on business trips.

Bonus pay

GIC’s salaries and bonuses are generally commensurate with private peers, though the system for carry – a kind of profit sharing with private equity investors – tends to be more complex to calculate, people with knowledge of the matter said.

“It’s easier to attract Singaporeans – you can infuse them with a sense of meaning,” said Ng. “The test of it is, are you able to attract non-Singaporeans?”

GIC also faces a challenge in global brand awareness. While anyone who has worked in finance would know the fund, it’s not a household name in other circles, making it harder to crack deals in rising areas like biotechnology or agriculture.

To counter that, GIC leverages its reputation as a reliable institutional partner, investing increasingly earlier in funding rounds and staying beyond the IPO without making big demands or joining activist moves along the way.

“GIC is a long-term investor,” Lim said. “That from day one has been something we emphasise – we keep to that part.”