SINGAPORE, July 28 — With the investment environment highly uncertain, Singapore’s sovereign wealth fund GIC saw lower returns in its latest 20-year assessment period and it will be looking to take on a more active investment approach ahead. This is especially in light of the greater challenges brought about by the Covid-19 pandemic. 

Today, the investment manager of Singapore’s reserves reported an annual return of 2.7 per cent — over and above the global inflation rate of about 2 per cent — across a 20-year period from April 2000 to March 2020. 

It is lower than the 3.4 per cent annualised real rate of return from the previous 20-year period and is also the second lowest annualised real rate of return since GIC’s inception in 1981. 

The lowest was 2.6 per cent, which was for the 20-year period ending in March 2009, a time when the global economy was besieged by the global financial crisis. 

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During a briefing with the media yesterday, GIC’s chief executive officer Lim Chow Kiat said that the timing and shape of an economic recovery is highly uncertain. 

The evolution of the Covid-19 crisis would depend on three factors:

  • How the virus progresses in terms of the development of a vaccine and the impact on a country’s healthcare system
  • The spillover effects on the economy
  • How the pandemic affects consumer behaviours, as well as a country’s macro-policy responses 

Reasons for drop in returns

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Lim said that the drop in the returns this time is mainly because the financial year ending March 2000 was excluded from the 20-year assessment period, and less so because of the inclusion of Financial Year 2019/20. 

Global markets were doing very well during FY1999/2000 due to the technology bubble. 

Dr Jeffrey Jaensubhakij, GIC’s group chief investment officer, said that GIC already started taking a more defensive stance in investment decisions going into the previous financial year due to the high valuations in the market. 

The sovereign wealth fund manages most of the Government’s financial assets and invests in a wide range of assets.

Besides investing in companies that had a stable income coming in, Dr Jaensubhakij said that GIC also sold some of its assets that had become too expensive and turned the money into dry powder or cash reserves.

Compared with the previous financial year, GIC has increased its portfolio share in nominal bonds and cash in this latest one ending in March 2020 and reduced the proportion invested in equities in developed and emerging markets due to the higher risks in these asset classes. 

As for whether this downward trend will continue in the future, Dr Jaensubhakij said that most of the 20 years after the turn of the century was a “very poor period for global equity”. 

With high valuations still an issue in the future, he said that it will still be a “tough environment” ahead. 

Shift in investment approach

Due to an uncertain future and the issue of high valuations in some asset classes such as bonds, Lim said that there will be greater divergence across countries, sectors and companies. 

“In terms of investment approach, we have to go deeper, we have to be more bottom-up, we have to go earlier in our investment value chain… (unlike) in the past where you could enjoy kind of a passive approach in asset allocation in particular,” he said in response to questions from the media. 

He added that the “bottom-up” approach has been the strategy that GIC has taken in the last few years. This includes working more closely with entrepreneurs and companies, funding them at a very early stage and connecting them with GIC’s networks. 

Amplitude, a cloud startup that tracks online behaviours, as well as food-technology startup Apeel Sciences, are two examples of enterprises that GIC invested in the early stages of their growth. 

Available investment opportunities

With the global economy focused on fighting Covid-19, Lim said that healthcare and technology have emerged as the clear sector winners among investors. 

However, he said that there are opportunities in other industries because the costs of investing in those sectors have gone down due to the pandemic. 

Some examples include the consumer and infrastructure sectors that could make a comeback in a post-Covid-19 world, especially companies that are able to respond to change and have sufficient balance sheets. 

Dr Jaensubhakij also said that data centres and logistics are another two sectors that are worth looking into due to changes brought on by the Covid-19 pandemic. 

However, he said that the GIC team has to be careful when assessing these companies even though their valuations have gone down. 

There are those that may never make a comeback after Covid-19, while others may recover three years from now. — TODAY