GIC, which manages US$390 billion of assets according to the Sovereign Wealth Fund Institute, is not presenting a cheery picture. Stripping out inflation, its 20-year annualised real return was 3.4%, compared to a rolling return of 3.7% last year. That’s partly because lucrative investments made during the early tech bubble years are falling out of the 20-year window, but weaker down years remain.
Inflation doesn’t make things look any better. Over 10 years and five years – though not 20 years – GIC underperformed its reference portfolio, which comprises 65% global equities and 35% global bonds. Conservative returns are driven in part by the fund’s move away from market turbulence: GIC’s volatility was lower over all three periods.
The tone struck on Friday suggests more, not less, of that is coming. Indeed, GIC’s allocation to developed-market equities has reduced to 23% for the year to March, compared to 27% a year earlier. Cash stood at 37%, compared to 35%. The only other increase in allocations was to private equity.
Of course, GIC is still investing. It has become a more visible presence in unlisted tech, for example in Chinese delivery-to-coupons giant Meituan Dianping when it raised cash in October at a US$30 billion valuation, and more often alongside Temasek. The pre-IPO investments made have been largely modest in size, though.
Still, warnings of overstretched valuations and trade-related volatility were also heard from elsewhere. Even equity-focused Temasek, which reported a portfolio at a record US$226 billion in part thanks to better performance from Singaporean banks like DBS, said it sees risks building and warned that it would pace its investment.
If the sovereign funds are cowering, that should be enough to make ordinary investors pause, too.
Context news:
– Singaporean sovereign wealth fund GIC said on July 13 that it has trimmed its exposure to developed market stocks over its financial year, and increased the amount it holds in cash, warning of challenging markets ahead and overstretched valuations.
– GIC’s annualised real rate of return, a key performance gauge which strips out inflation, was 3.4% for the 20-year period that ended in March, it said in its annual report. That compares to 3.7% a year ago.
– On July 10, Singapore state investor Temasek said it was looking to temper its pace of investments, as trade tensions between China and the United States increase. It reported a record net portfolio value of US$226 billion.
– Chinese sovereign wealth fund China Investment Corp said on July 11 that a trade war appeared “unavoidable” and could hurt its investments.