Grim Outlook for Singapore Sovereign Wealth Fund after Poor Returns

The Singapore sovereign wealth fund GIC, responsible for the nation’s foreign reserves, has a downbeat investment outlook after reporting its lowest gains since the last financial crisis.

In the fiscal year ending in March, the fund logged a 2.7% 20-year annualized rate of return adjusted for global inflation, down from 3.4% the year prior, according to its annual report released Tuesday. It’s the lowest return GIC has averaged since 2009, when it returned just 2.6%.

While the March market sell-off had an impact on the annualized rate of return, the sovereign wealth fund noted that the markdown is mostly because of a 20-year cycle that has finally exited the dot-com expansion of the late 1990s.

Any losses the Singapore reserve fund suffered were at least partially offset by the “cautious and defensive” stance it had going into the coronavirus crisis. In March, GIC had a 44% allocation into nominal bonds and cash, up from 39% the prior year. It lowered its developed market equity allocation to 15%, down from 19% the prior year. Emerging market equities also dropped to a 15% allocation, down from 18% the previous year.

Going forward, the sovereign wealth fund expects the investment environment to continue to be “uncertain,” thanks to the lasting impact of COVID-19, as well as volatility from unforeseen events to increase in the future, the fund said in a grim report. GIC, which does not break out its total assets, is expected to have about US$453 billion, according to the Sovereign Wealth Fund Institute.

“The global health and economic outlook remains challenging,” GIC CEO Lim Chow Kiat said in a statement. “In this environment, GIC continues to proactively seek opportunities that will generate good long-term risk-adjusted returns, as well as ensure that the total GIC portfolio remains resilient to uncertain outcomes.”

Among opportunities that GIC is seeking is continued diversification through private markets. GIC, one of the largest global asset allocators in private markets, plans to invest in defensive strategies, such as rental and manufactured housing, data centers, and utilities.

Long term, the sovereign wealth fund is eyeing the continued growth in digital commerce, and plans to take stakes in fintech, health-tech, and enterprise software companies. It also expects to invest in sustainable infrastructure.