Singapore fund reports decline in its main performance gauge
20-year return falls to 3.7% from 4%, fund says at briefing
Lim Chow Kiat Photographer: Bryan van der Beek/Bloomberg
Singaporean sovereign wealth fund GIC Pte warned that investors are being too complacent about looming market risks, while disclosing that its main performance gauge fell for the second straight year.
“We are cautious because valuations are stretched, policy uncertainty is high and there are still unresolved economic imbalances,” Lim Chow Kiat, GIC’s chief executive officer, said in an interview in the city. The "uncertainty level is very high," in contrast to "very low" actual equity price volatility, he said. "We think this indicates investor complacency, another reason for us to be more cautious."
GIC’s annualized real rate of return fell to 3.7 percent in the 20 years to March 31, from 4 percent in the prior comparable period, Lim said in the interview ahead of the Monday release of the numbers. The decline partly reflects the fact that the calculation now excludes the year through March 1997, when rallying markets boosted returns. The fund’s nominal five-year annualized return in U.S. dollars climbed to 5.1 percent from 3.7 percent.
The warning from GIC adds to those of investors worried that low readings in market measures known as fear gauges could foreshadow a giant disturbance down the road. In the U.S., one of those gauges, the VIX, recently hit the lowest level since 1993, busting through the lows seen in 2007 that were followed by the subprime crisis, the collapse of Lehman Brothers and the global credit crunch.
GIC reiterated a warning that high valuations and low economic growth rates may weigh on future returns. One investment opportunity is emerging market equities, which don’t have such “stretched" valuations, Lim said.
“We continue to deliver steady returns," Lim said. "We have built a resilient, diversified portfolio."
GIC’s holdings in its main asset classes were almost unchanged from last year, with 35 percent in nominal bonds and cash, up from 34 percent. That is higher than the long-term target allocation in the fund’s model portfolio and reflects GIC’s current cautious investment stance, Lim said.
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