GIC said in its annual report that over a five-year period ending March 2018, its portfolio returned 6.6 per cent per annum in US dollar nominal terms, versus 5.1 per cent a year ago.

SINGAPORE: Singapore sovereign wealth fund GIC posted a drop in its key metric of investment performance for the last financial year, as it warned of a challenging environment ahead due to stretched valuations and heightening trade frictions.

For the year ended Mar 31, the 20-year annualised rate of return - GIC’s most important benchmark - slipped to 3.4 per cent from 3.7 per cent a year ago, according to the latest annual report released on Friday (Jul 13). This marked the third consecutive year of decline since the return rate hit 4.9 per cent in FY2014/15.

Nevertheless, GIC said this figure is above the global inflation rate and means that the international purchasing power of its reserves almost doubled during the 20-year timeframe.

CEO Lim Chow Kiat said GIC’s 20-year annualised rate of return was fluctuating around 4 per cent before declining below that in recent years. This is due to years being dropped and added as its 20-year window rolls.

“The high returns at the beginning of the tech bubble period (in the late 1990s) have dropped out,” he told reporters at a briefing, while adding that this effect could continue for a few more years and dampen the 20-year return.

“We don’t know what year will come in (but) what we can do is to focus on our approach, which is to make sure our portfolio is robust, diversified and is able to hold through difficult environments.”

In US dollar nominal terms, GIC’s portfolio returns were 5.9 per cent per annum over the last 20 years, slightly above the 5.7 per cent annualised return from its reference portfolio. The latter, made up of 65 per cent global equities and 35 per cent global bonds, refers to the risk that GIC can take to generate good long-term investment returns.

Over the five- and 10-year periods, GIC saw annualised returns of 6.6 per cent and 4.6 per cent in US dollar nominal terms, respectively. These are lower than the reference portfolio’s 6.9 per cent return over a five-year period and 5.2 per cent over 10 years.

This is due to how GIC’s portfolio has a smaller allocation to developed market equities than its reference portfolio, after lowering its exposure in recent years due to increasingly stretched valuations, said the FY2017/18 report.

More at https://www.channelnewsasia.com/news/business/gic-s-annualised-20-year-real-return-slips-to-3-4-maintains-10525598