GIC braces for 'greater uncertainties' ahead
01 Aug 2012
The Government of Singapore Investment Corp has quadrupled its cash allocation, cut its holdings in Europe and increased its investments in North Asia as it braces for "greater uncertainties" ahead.
The cash allocation rose to 11% from 3% for the financial year ended March 2012, the Singapore sovereign wealth fund said in its annual report. With the heightened uncertainty in global markets, GIC had allowed the cash inflow from investment income and fund injection to accumulate during the year to prepare for better investment opportunities.
In fiscal 2011-2012, the 20-year annualised real rate of return was 3.9%, unchanged from the year before. Group Chief Investment Officer Ng Kok Song said: "Investment returns are likely to be low until the global economy returns to balanced and sustainable growth. Debt-deleveraging in the developed economies will continue to hinder their growth. The emerging economies led by China will have higher and more robust growth but are not yet of a sufficient scale to offset anaemic growth in the developed economies."
GIC's exposure to public equities fell to 45% from 49% while bonds holdings dropped to 17% from 22 %. GIC said it reduced the allocation to bonds because bond yields in the developed markets had been pushed down to abnormally low levels by the flight to safe assets and central bank intervention.
The company cut its holdings in Europe to 26% from 28% while increasing its investments in North Asia to 29% from 27%. Within Europe, its assets in Portugal, Ireland, Italy, Greece and Spain made up 1.4% of its portfolio, mainly held in real estate and stocks in Italy and Spain. GIC, the world's eighth-largest sovereign fund, manages about $250bn worth of assets, according to the Sovereign Wealth Fund Institute.
As the debt crisis in Europe spreads beyond the periphery to the larger Spanish and Italian economies, GIC said: "There is still a risk of disruptive events in the eurozone, and prolonged weakness in economic growth."
Assets in the Americas were unchanged at 42%, with 33% of the total portfolio in the U.S. The company said the fragile economic recovery in the US could be aborted by automatic spending cuts and tax increases if political gridlock continues beyond the 2012 elections with no compromise on a long-term plan for reducing the public deficit.
Meanwhile, growth in the emerging economies, particularly China, is slowing and this will "weaken global business confidence and also impact the commodity-producers."
Alternative assets holdings increased to 27% from 26%, it said, with a gain in private equity and infrastructure investments. Real estate was unchanged at 10% of its portfolio. Positive returns from bonds and real estate have helped to offset the negative returns from emerging markets and natural resource equities.
The key risks to the portfolio are political and economic developments which impact equity returns, Ng said. "Looking ahead, we assess that the investment environment will be characterised by a global economy struggling to return to sustainable growth."
Incorporated in 1981, GIC invests outside Singapore and its fundamental sources of funds are the country's balance of payments surpluses and accumulated national savings.
Author: Bee-Lin Ang