GIC Worries About Inflation, Pandemic Risks, and Geopolitical Challenges
Posted on 07/28/2022
Singapore’s GIC Private Limited, a massive Asian sovereign wealth fund, reported a 4.2% annualized 20-year return adjusted to global inflation. GIC struggled in the early part of 2022, as fixed income markets were roiled by signals of the Federal Reserve moving interest rates beyond the zero range. GIC’s mandate is to preserve and enhance the international purchasing power of the reserves under their management over the long term horizon. GIC’s investment strategy is to build a portfolio comprising asset classes that can generate good long-term returns above global inflation while adhering to risk parameters.
Lim Chow Kiat, the CEO of GIC, wrote in his CEO letter in the annual report, “Profound uncertainties have emerged on multiple fronts. Years of concerns over deflation have turned into worries of elevated inflation, forcing economic policymakers to reverse stimulus policies. At the same time, the clock for the climate crisis is ticking, pandemic risk lingers on, and geopolitical conflicts and domestic political schisms are growing. There are no easy choices for policymakers and business leaders, and in turn, for investors.
He added, “he shift to a potentially high inflation regime has significant investment implications. High inflation not only reduces real returns immediately, but its adverse impact on economic stability raises the risk premia on financial assets.”
GIC moved to increase allocation in its real estate and real assets holdings such as infrastructure. GIC is seeking more inflation-resistant assets.
GIC increased in FY 2022, allocation to both private equity and real estate, while lowering allocation to listed equities and nominal bonds and cash. GIC also slightly reduced exposure to Europe, while increasing exposure to the U.S.
