GIC, the Singaporean sovereign wealth fund, has increased its holdings in cash and bonds and cut exposure to developed markets as it warned of a challenging global investment environment ahead.

In its annual report, GIC said: “As monetary policy normalises and interest rates rise, financial assets will see diminished returns.

“Further, the current high prices in financial markets portend weaker future returns, including possibly negative returns at some point.”

For the year ended 31 March, GIC posted a 20-year annualised real rate of return, in excess of global inflation, of 4.1%.

The GIC Portfolio generated a nominal annualised return of 6.5% over the same period.

CIO Lim Chow Kiat said: “Asset yields are low, and all major asset classes are facing potentially low future returns.

“We continue to strive for a steady long-term real rate of return by focusing on price discipline as our investment teams originate, structure and pursue investment opportunities across asset classes and across the capital structure.”

GIC adopted a new investment framework in April last year.

Under the new strategy for asset allocation, developed market equities will range between 20% and 30%, emerging market equities between 15% and 20%, private equity 11-15%, real estate 9-13%, inflation-linked bonds 4-6% and nominal bonds and cash between 25% and 30%.

Its latest portfolio allocation reflects those changes.

Holdings of developed markets equities were reduced to 29% from 36% a year ago, while exposure to emerging market equities rose from 17% to 19%. 

Nominal cash and bond holdings increased by 2 percentage points to 31%, and the company’s inflation-linked bond exposure rose to 5% from 2%.

The allocation to real estate was cut to 7% from 8%, while private equity holdings rose to 9% from 8%.

The company said it continued to build its exposure to emerging market equities and bonds while keeping its portfolio risk at around the same level.

It added that it did not make major changes to its geographical exposure, and that adjustments were largely driven by allocation, as well as valuations.

As at the end of March, exposure to Europe increased by 4 percentage points to 29%, while exposure to the Americas was down 2 percentage points to 42%.

Allocation to Asian investments fell to 27% from 28% and exposure to Australasia dropped to 2% from 3%.

GIC set up its tenth office, in Sao Paulo, Brazil, in April as it aimed to “develop investment opportunities with a local presence in Latin America”.

The company declined to provide details of its individual holdings.

However, under a feature article on private equity published in its annual report, it said it had investments in “well over 100 companies globally”, with a focus on financial services, business services, consumer, healthcare, technology/media/telecommunications and natural resources.