Singapore’s sovereign wealth fund has posted its highest return rate in six years and has warned of caution over rising inflation and a potential deterioration in the coronavirus pandemic.
GIC reported a 20-year real annual rate of return, its main performance metric, at 4.3 percent for the year through the end of March, the highest since 2015, when it posted returns of 4 percent. , 9 percent.
The strong performance of certain assets during the pandemic and exit through initial public offerings from portfolio companies as the U.S. food delivery application DoorDash contributed to the jump, said Lim Chow Kiat, CEO of GIC.
The fund predicts that a global recovery will continue soon, with a “strong return to growth” in China and the United States, with central banks maintaining a loose monetary policy and low interest rates and countries beginning to implement fiscal stimulus. triggered during the pandemic, said Jeffrey Jaensubhakij, head of investment at GIC.
But GIC is more “cautious” in the long run, he added. High valuations for assets including equity, real estate and infrastructure were “in contrast to some uncertainty in the environment”.
He warned that the potential threat of a new coronavirus variant “that could run through vaccines in a more significant way” had not been assessed.
Rising inflation – which in the US shows signs of not being temporary – is also worrying. “We think there is a risk of higher returns in the coming years,” Jaensubhakij said.
This is partly because the fund is interested in private market asset classes including real estate and infrastructure that offer relatively higher returns at a time when bond prices could fall as inflation rises. .
GIC, which does not disclose its assets under management, except to say they are “well over $ 100 billion,” increased its exposure to private equity to 15 percent in the 12 months to the end of March. , by 13 percent and 12 percent in 2020 and 2019, respectively.
The hunt for yields also contributed to the decline in GIC exposure in Japan from 13 percent to 8 percent in the year to March as the fund exploited fixed-income products with more attractive yields. in other Asian markets such as China.
Asia without Japan took 26 percent of GIC’s portfolio, up from 19 percent a year earlier. The value of the assets at the end of the financial year also dictates the geographical distribution.
The fund – which was caught in the last minute suspending Ant Group’s $ 37 billion IPO in November – said it was re-engaged in China, despite regulatory hurdles aimed at technology companies. .
The action in Didi, the Chinese ride-hailing app, fell after it was hit by a national regulatory investigation days after its $ 4.4 billion New York listing this month, while the bankers are battling to restart the IPOs of Chinese companies in Hong Kong after Beijing announced it would tighten restrictions on overseas floats.
“China remains a very important market for GIC,” Lim said.
Jaensubhakij added that while the fund had been “definitely influenced” by these regulatory changes, they were “an integral part” of the environment in which companies operate.
Examples of interesting Chinese assets include technology companies that have not grown enough to trigger regulatory concerns or larger players that have not yet “completely monetized” their operations, he said.