Singapore's GIC reports improved returns but outlook cautious

SINGAPORE: GIC, a sovereign wealth fund which manages over $100 billion of Singapore´s foreign reserves, reported improved returns Thursday but warned future earnings could be hit as central banks worldwide raise interest rates.
The fund, one of the biggest in the world, said it earned a 4.9 percent annualised real rate of return over the past 20 years ending March 31, up from 4.1 percent last year, bolstered by buoyant global markets.
But GIC said in its annual report that with central banks set to wind down the low-interest rate regimes which have inflated asset prices, returns in the next five to 10 years are likely to be more modest. "While asset prices have risen strongly, the outlook for economic growth and earnings has not improved by as much," Lim Chow Kiat, group chief investment officer at GIC, said in a statement.
"Current valuations are high, pointing to a more difficult investment environment with lower broad market returns and higher volatility," he said.
"GIC will keep to its patient orientation and continue to take advantage of the short-term price volatility in order to generate good real returns over the long term."
Governments worldwide cut interest rates and rolled out generous stimulus packages to support their economies in the aftermath of the 2008 global financial crisis, sharply driving the prices of assets like stocks and property higher. But central banks are unwinding the packages as the global economy improves, with the US Federal Reserve likely to start raising its ultra-low interest rates for the first time in nine years later this year.
"The current high asset prices are likely to result in low returns over the next five to ten years," GIC said.
"The path is also expected to be volatile, given the challenges that policymakers are likely to face in exiting from their extraordinary policy measures."
GIC´s global portfolio includes equities, bonds and real estate.
As of end March, 34 percent of

its assets are in the United States, 25 percent in Europe and 30 percent in Asia.
This year, GIC tied up with four other companies to invest 3.1 billion pounds ($4.8 billion) for a 33 percent stake in Hutchison Whampoa´s British mobile telecom business.
GIC itself contributed 1.1 billion pounds.
Last December, GIC said it was buying IndCor Properties, one of the biggest industrial landlords in the United States, from parent firm Blackstone for a whopping $8.1 billion.
While GIC does not disclose the value of its assets under management, the US-based Sovereign Wealth Fund Institute (SWFI) ranks it as the eighth biggest in the world with holdings worth $344 billion.
GIC is one of Singapore´s two state-linked investment vehicles, the other one being Temasek Holdings.