GIC continues to deliver steady long-term returns

But sovereign wealth fund warns of challenging investment climate over the next few years

Sovereign wealth fund firm GIC continues to deliver steady long-term returns, but warned yesterday of a challenging climate ahead.

Its benchmark 20-year annualised real rate of return between April 1998 and March 2018 was 3.4 per cent above the rate of global inflation.

This number was 3.7 per cent for the 2017 financial year, 4 per cent for 2016 and 4.9 per cent for 2015.

"The line has come down ... even though historically, this number hovered around 4 per cent real rate of return over and above global inflation," chief executive Lim Chow Kiat said at a briefing yesterday.

"That's because the high returns at the beginning of the period - the late 1990s - have dropped out of the 20-year window."

The late 90s saw the dotcom bubble, which fuelled stock markets and generated good returns for GIC.

GIC noted that the investment climate looks to remain challenging over the next few years with high valuations, slow global growth and significant uncertainties.

Mr Lim said GIC's diversified portfolio would be able to hold up relatively well as the team is preparing for the worsening international trade rows.

"If the trade tension escalates, it is a matter of how bad it gets to, we would expect some impact. But we certainly are preparing for that as an outcome that has rising probability," he said.

Group chief investment officer Jeffrey Jaensubhakij said trade disruptions meant the global supply chain would have to change, bringing opportunities to tweak the portfolio, adding: "It requires us to think harder and be more nimble."

GIC warned that uncertainties, including tensions around income inequality, populism, geopolitical conflicts and the potential negative impact of disruptive technologies, persist.

"Nevertheless, we remain ready to take advantage of potential dislocations. The jump in market volatility experienced in early 2018 offered an indication of potentially bigger market turbulence and opportunities in the future," Mr Lim said.

It is maintaining a cautious investment stance given high asset valuations, the risk of rising interest rates and heightened uncertainty.

In nominal US dollar terms - not adjusted for inflation - GIC's portfolio returned 5.9 per cent a year for the 20 years to Mar 31, 2018.

That period included the poor market performance due to the global financial crisis and the European debt crisis.

Mr Lim outlined the strategy ahead: "What we can do is to focus on our approach which is to make sure our portfolio is robust, diversified, able to move through even difficult environment."