What GIC’s Annual Results Tell Us About Sovereign Wealth Under Covid-19

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July 28 2020

The sovereign wealth fund is withdrawing to cash, has seen a once-in-a-generation drawdown and is positioning defensively

Today (Tuesday July 28) the Government of Singapore Investment Corporation (GIC), one of the biggest and most sophisticated sovereign wealth vehicles in the world, announced its full-year return to March 31 ,2020.

Chief executive Lim Chow Kiat has been saying for at least two years that high valuations, weakening fundamentals and political tensions around the world were becoming alarming.

That’s not to say he and his team saw the global pandemic coming – but it probably helped.

“The defensive stance helped the portfolio withstand some of the more extreme market movements,” Lim said today, and one can see the caution in the difference between the asset mixes one year apart.

Between March 31, 2019 and the same date in 2020, the proportion of the portfolio allocated to nominal bonds and cash jumped from 39% to 44%, and inflation-linked bonds from 5% to 6%. Equities fell proportionally (developed market from 19% to 15%, emerging market from 18% to 15%). Real estate was flat, and private equity up, from 12% to 13%, despite a perennial challenge for the fund in finding places to deploy its money.

In essence, there’s a shift from volatile public assets to illiquid and therefore more predictable private assets. This is why GIC, which is diversified, turned a (long-term) profit, and Temasek, with a totally different mandate that positions it almost entirely in equities, made a loss. It was still GIC’s worst 20-year annualized return for a decade.

This is history talking. GIC is there for the long run, which is why its headline number is the 20-year rolling rate of return: currently a nominal rate of 4.6%, or, after adjusting for global inflation, an annualized real rate of return of 2.7%. That latter figure is down from 3.4%.

Is this Covid -19 impacting the results? A bit, but not as much as you might think.

A bigger impact is the fact that 21 years ago, the market was in the middle of the tech bubble, and GIC was benefiting accordingly. This year, the late-1990s boom years are no longer reflected in the 20-year returns, impacting today’s number two decades later. And, if that seems an excuse, Lim specifically predicted it when he spoke to Euromoney last year.

Read the rest of the article here: https://www.euromoney.com/article/b1mpgqyp6x1vn2/what-gics-annual-results-tell-us-about-sovereign-wealth-under-covid-19?copyrightInfo=true

Chris Wright
Chris Wright
Chris is a journalist specialising in business and financial journalism across Asia, Australia and the Middle East. He is Asia editor for Euromoney magazine and has written for publications including the Financial Times, Institutional Investor, Forbes, Asiamoney, the Australian Financial Review, Discovery Channel Magazine, Qantas: The Australian Way and BRW. He is the author of No More Worlds to Conquer, published by HarperCollins.

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