Concerned with Developed Economies, Singapore’s GIC Alters Investment Strategy

(July 26, 2011) – In the midst of uncertainty about developed markets, the Government of Singapore Investment Corp (GIC) called the current investment environment “challenging” in its Report on the Management of the Government’s Portfolio, which was released yesterday.

The GIC, which manages the funds of the Singapore government, is the world’s seventh largest sovereign wealth fund. In response to the uncertainty surrounding US and European markets, the GIC has increased its investment in developing economies as well as expanding the breadth of countries and instruments in which it invests, according to Ng Kok Song, the fund’s CIO.

In a statement reported by Bloomberg, Song summarized the GIC’s investment outlook: “The sustainable recovery of the developed economies remains uncertain, while the emerging economies face challenges in restraining inflationary pressure and currency appreciation…GIC will continue to respond nimbly to this challenging environment.”

According to the GIC, responding to inflationary pressures is consistent with the main tenet of the fund’s investment philosophy. “Our aim is to achieve good long-term returns for the Government – a reasonable risk-adjusted rate above global inflation over a 20-year investment horizon,” the fund’s website states. For the year ended March 31, 2011, the GIC reported a 20-year real rate of return of 3.9%, up from 3.8% at the same time last year.

The changes in the fund’s asset allocation over the past year reflect the concerns and outlook offered by Song. Public equity holdings in developed markets are down 7% from March 31, 2010, while emerging market equity holdings have increased by 5%. Additionally, fixed income holdings are up 2% and real estate is up 1%. The change in real estate holdings may be largely attributable to the GIC’s acquisition of five US resorts, as reported by aiCIO in February of this year.

In late February, aiCIO reported that GIC’s deputy chairman Tony Tan said that he considered the US the “single most important source of global prosperity” in spite of the emergence of developing economies. The fund has not issued any specific statement as to whether or not this view of the US has changed during the past five months.

According to Bloomberg, GIC is the biggest investor in both Citigroup and UBS. Reuters has reported that the fund has not changed its long-term view on the two financial giants.