Photographer: Nicky Loh/Bloomberg

Sovereign Wealth Fund GIC Warns Investors Aren't Fearful Enough

  • Singapore fund reports decline in its main performance gauge
  • 20-year return falls to 3.7% from 4%, fund says at briefing

Singaporean sovereign wealth fund GIC Pte warned that investors are being too complacent about looming market risks, while disclosing that its main performance gauge fell for the second straight year.

Lim Chow Kiat

Photographer: Bryan van der Beek/Bloomberg

“We are cautious because valuations are stretched, policy uncertainty is high and there are still unresolved economic imbalances,” Lim Chow Kiat, GIC’s chief executive officer, said in an interview in the city. The "uncertainty level is very high," in contrast to "very low" actual equity price volatility, he said. "We think this indicates investor complacency, another reason for us to be more cautious."

GIC’s annualized real rate of return fell to 3.7 percent in the 20 years to March 31, from 4 percent in the prior comparable period, Lim said in the interview ahead of the Monday release of the numbers. The decline partly reflects the fact that the calculation now excludes the year through March 1997, when rallying markets boosted returns. The fund’s nominal five-year annualized return in U.S. dollars climbed to 5.1 percent from 3.7 percent.

The warning from GIC adds to those of investors worried that low readings in market measures known as fear gauges could foreshadow a giant disturbance down the road. In the U.S., one of those gauges, the VIX, recently hit the lowest level since 1993, busting through the lows seen in 2007 that were followed by the subprime crisis, the collapse of Lehman Brothers and the global credit crunch.

GIC reiterated a warning that high valuations and low economic growth rates may weigh on future returns. One investment opportunity is emerging market equities, which don’t have such “stretched" valuations, Lim said. 

“We continue to deliver steady returns," Lim said. "We have built a resilient, diversified portfolio."

GIC’s holdings in its main asset classes were almost unchanged from last year, with 35 percent in nominal bonds and cash, up from 34 percent. That is higher than the long-term target allocation in the fund’s model portfolio and reflects GIC’s current cautious investment stance, Lim said.

GIC had 34 percent of its holdings in the U.S., 19 percent in Asia excluding Japan, 12 percent in the euro area, 12 percent in Japan, and 6 percent in the U.K. 

Among the largest investments during its reporting period was the $500 million acquisition of a stake in Alibaba Group Holding from SoftBank Group Corp. GIC had been a long-time investor before the 2014 initial public offering of the Chinese e-commerce behemoth.

Singapore’s state fund partnered with Indonesian cinema operator PT Nusantara Sejahtera Raya and also bought a stake valued at as much as 230 million euros in Irish phone carrier Eir. GIC was also one of the two investors in YES! Communities in August 2016, a deal that valued the U.S. manufacturer and owner of pre-fabricated homes at more than $2 billion.

Among GIC’s biggest divestments after the end of the reporting period was the sale of about 2.4 percent for total proceeds of about $1.5 billion in UBS Group AG, the Swiss bank where it had invested in February 2008 early in the financial crisis. GIC said in May it was “disappointed” that it lost money in the investment.

Lim Chow Kiat declined to comment on whether GIC would further reduce its stake in UBS or sell its holdings in Citigroup Inc. The sovereign fund still holds 2.7 percent of UBS and 3.9 percent of Citigroup, according to Bloomberg data.

GIC is currently in the process of divesting of its 37 percent stake in industrial property developer Global Logistic Properties Ltd. as part of what is set to be the largest Asian buyout.

GIC manages a mix of government surpluses and inflows from the Central Provident Fund, a government savings plan that provides retirement income for Singaporeans. GIC doesn’t disclose the size of its assets under management, saying only that it manages “well over” $100 billion. The London-based Sovereign Wealth Center puts its total holdings at $354 billion, making it the world’s fifth-biggest state fund.

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