(Bloomberg) -- Singapore’s giant sovereign wealth fund GIC Pte. reported its lowest Asian exposure in more than a decade, with its US and Europe assets on the rise, according to its latest annual report.
Around 26% of GIC’s investment portfolio was in Asia as of the end of March, compared with 39% in the US alone, according to the report released on Wednesday. Its holdings in Japan — whose equity market has soared — continued their steady decline, and now make up just 4% of the firm’s assets.
The shift is a marked turnaround for GIC, which consulting firm Global SWF estimates has around $769 billion in assets under management — making it one of the largest institutional investors globally.
In 2019, the firm dedicated a chapter of its annual report to “Asia’s growing importance” in the global economy and financial markets, and predicted that growth in the region would persist. That year, GIC had 32% of its portfolio in Asia, including Japan.
Over the past few years, “in relative return terms, the US market has done particularly well and Asia especially ex-Japan had not done well,” said Jeffrey Jaensubhakij, GIC’s Group Chief Investment Officer. He said regional currency fluctuations, including the sharply weaker Japanese yen, also played a role in the firm’s lower reported Asia asset exposures, adding that China’s macroeconomic challenges have continued. The firm also said it does not make top-down allocations based on geography.
GIC, which largely avoids investing in its home country, is the second giant Singaporean state-owned investor to show a renewed interest in US and European assets. Earlier this month, Temasek Holdings Pte. reported that its investments in China fell below those in the Americas for the first time in at least a decade. GIC’s returns, along with those from Temasek and the Monetary Authority of Singapore, help form the national budget’s second-biggest source of funding.
Flat Performance
GIC does not report its annual performance. But its 5-, 10- and 20-year returns showed relatively small changes: its annualized 20-year nominal return dropped to 5.8% from the 6.9% return it reported a year ago. The firm’s annualized 5-year nominal returns rose slightly to 4.4%.
On an inflation-adjusted basis, GIC’s 20-year return fell to a four-year low of 3.9%, due in part to a strong FY2004 no longer factoring into the rolling calculation.
GIC acknowledged it had been underweight in developed market equities, which made up 13% of the firm’s portfolio, the same level as a year earlier. That resulted in lower returns even as stock markets in the US and Japan boomed. In the five years ended March 31, 2024, the S&P 500 climbed 85% and the Nikkei 225 surged 90%.
“In the short term, diversification could cost us some opportunity cost, but we believe that it’s really important — especially in a world that has all this major uncertainty — to keep our price discipline and to keep our diversification,” said GIC Chief Executive Officer Lim Chow Kiat.
The firm’s mix of other assets were also largely unchanged compared with a year earlier, with GIC’s allocation to inflation-linked bonds and private equity rising slightly to 7% and 18% respectively. Nominal bonds and cash made up 32% of its total portfolio.
The fund increased its investments in private equity secondaries, or stakes in existing funds, as well as green assets and artificial intelligence companies. Last year GIC acquired interests in more than 50 funds with over 500 underlying companies.
AI and China
Lim said there is money to be made in China despite the country’s ongoing challenges. Aside from the oft-cited investment themes of green energy and the needs of domestic consumers, GIC is looking to get involved in discussions with multinational companies that want to sell stakes in their China operations — and that are looking for capital partners.
And while the Chinese property market remains in the doldrums, the Singaporean fund has worked on recent deals that build real estate to be rented out rather than sold.
“China is still in the midst of changing its growth model,” said Lim. “Even though deal flow is not quite as active as in the past or even compared to other parts of the world, there are still opportunities.”
GIC has also been investing in the global artificial intelligence industry, but Jaensubhakij sounded a note of caution. While there are hundreds of startups and companies that are developing AI solutions, he said it is difficult to tell who the ultimate winners will be.
“At this point it has priced in a lot of hope, rather than some visibility as to what could be achieved,” Jaensubhakij said of some of the valuations in the market.
Lim said that GIC will continue to have a large US exposure, no matter what the election outcome this year. “We believe the US will remain a big and very important investment destination for us,” he said.
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