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Singapore Sovereign-Wealth Fund Expects Lower Returns
GIC has long-term investment view on China
BEEK/BLOOMBERG NEWS
By P.R. VENKAT
Updated July 29, 2015 8:13 p.m. ET

SINGAPORE—Singapore’s sovereign-wealth fund, one of the world’s biggest, has warned that it expects lower returns over the next five to ten years because global economic growth and earnings don’t look promising.

GIC Pte Ltd., whose largest investments are in North America, said ultralow interest rates have inflated asset prices in developed markets. It said opportunities remained in developed and emerging markets, although it cut its exposure to Europe in the fiscal year to March 2015.

“The fall in interest rates to historic lows in most advanced economies has caused prices of a broad range of asset classes to rise,” Lim Chow Kiat, GIC’s group president and chief investment officer, said in the fund’s annual report for the fiscal year that ended in March. “The sharp rise of asset prices, when the global economy is still struggling to gain a firm foothold, makes the investment environment particularly uncertain and unpredictable.”

ENLARGE
Even China, which has faced waves of heavy selling in stocks in the past month, remains a long-term investment destination for the fund, GIC said. The fund said it still has a positive view on the economy and believed in the ability of the government to carry out overhauls. Recent volatility is ”fallout of rampant market speculation,” Mr. Lim said.

“China in the last three years has demonstrated its seriousness to reforms and we believe that the country’s future is good," he said.


GIC publishes its annual report following a lengthy audit process. The sovereign-wealth fund is a major global player, and its investments are closely watched. The fund said its investments globally gave it a 4.9% 20-year real rate of return for the fiscal year that ended March 31, or a 6.1% return over the same period in U.S. dollar terms.

“The challenge posed by higher current valuations, low starting yields and low potential future returns is common to all major asset classes; public equities, private equity, bonds and real estate,” GIC said in its report.

GIC, which manages Singapore’s foreign-exchange reserves and bought stakes in Citigroup Inc. and UBS AG during the financial crisis, oversees around $344 billion in assets, according to the Sovereign Wealth Fund Institute, making it the world’s eighth-biggest fund.

The Americas remain GIC’s biggest investment destination, accounting for 43% of its assets last fiscal year, up from 42%.

GIC didn’t disclose specific investments in its results, but the Singapore fund in late 2014 made one of its single biggest overseas investments when it bought U.S. warehouse operator IndCor Properties Inc. for $8.1 billion from Blackstone Group LP. It also bought a 5% stake in Nielsen N.V., the U.S. information and television-ratings company, in a deal valued at more than $800 million.

The fund reduced its focus on Europe. Investments there made up 25% of its assets as of March, down from 29% previously. Asia, meanwhile, rose in its portfolio, accounting for 30% of its total holdings, up from 27%.

GIC still holds stakes in UBS and Citigroup and said that it was comfortable with the lenders’ execution of their business strategies. “Their recent results reflect the progress made by these banks,” Mr. Lim said.

The sovereign-wealth fund doesn’t usually disclose its investments. It only reports on the performance of its portfolio over 20-year, 10-year and five-year periods.

Since last year, GIC has been aggressively pursuing investment opportunities, putting billions of dollars in areas ranging from property to technology to businesses focused on consumers.

In addition to its holdings in IndCor and Nielsen, the Singapore fund is also an investor in CGN Power Co., China’s largest operator of nuclear power plants. In May this year, GIC said that it will invest $1.7 billion in Hutchison Whampoa Ltd.’s U.K. telecommunications business.

GIC said in its latest annual report that it kept its exposure to developed stock markets at 29%, while marginally cutting its exposure to emerging-market stocks to 18% from 19% the prior year. Investments in bonds and cash accounted for 32%, compared with 31% last year, and exposure to real estate remained at 7%.

Over a five-year period, GIC said its annualized nominal return in U.S. dollar terms was 6.5%. Over 10 years, it was 6.3%.


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