GIC’s shrinking returns are adding gloom to Singapore. The sovereign wealth fund, which manages an estimated $343 billion of assets, has delivered its worst annual performance since 2001 barring the financial crisis. The outlook is depressing too. The challenges of investing overseas compound the mood at home as the city's first family feud in an ugly public squabble.
Stripping out inflation, the wealth fund reported a 20-year annualised real return of 3.7 per cent, compared to a rolling return of 4 per cent last year. Including inflation does not improve the picture. Average nominal returns also underperformed GIC's own reference portfolio, which comprises 65 per cent global equities and 35 per cent global bonds. The fund uses the reference portfolio to measure its risk tolerance, rather than as a performance benchmark.
GIC has been increasing its exposure to bonds and cash for the past two years. That has come at the expense of equities, on the back of concerns that stock market valuations had overrun. But in a world of still-low interest rates and abundant liquidity, bond yields have remained depressed and equities have continued to rise. GIC now warns it is prepared for a protracted period of low returns. One issue is that it has always had a lower risk appetite than smaller cross-town state investor Temasek, which is expected to report strong results later this week.
Singapore could do without such sombre predictions from one of its most prominent entities. For several weeks, the financial centre has been grappling with an ugly spat between Prime Minister Lee Hsien Loong and his siblings. The family feud, partly over whether to demolish an old family home or let it become a heritage site, threatens to upend the city's image as a beacon of stability. GIC’s performance simply reinforces the impression that Singapore is facing hard times.