GIC claws back half of 20 per cent investment loss

The Government of Singapore Investment Corporation (GIC) has recovered almost half of last financial year’s investment loss in recent months thanks to the revival in global stock markets, after recording a 20 per cent fall in assets in the year ending March 31, 2009.

In its annual report, group chief investment officer Ng Kok Song said GIC reduced public equities by more than 10 per cent between July 2007 to September 2008, and in early 2009 decided this defensive position was no longer warranted, restoring public equities to pre-crisis levels (38 per cent).

He said in recent years, GIC had sought to construct a diversified multi-asset class portfolio by increasing alternative
investments such as private equity and real estate, but this diversification was ineffective in the 2008 “financial earthquake”.

As at 31 March, 2009 GIC’s asset allocation was: 38 per cent public equities, 24 per cent fixed income, 30 per cent alternatives and 8 per cent cash.

This represents a reduction in public equities of 6 per cent compared to 31 March 2008, a 2 per cent hike in bond
exposure, a 7 per cent increase to alternative assets and a 1 per cent addition to the cash reserves.

Tony Tan Keng Yam, deputy chairman and executive director at GIC, said the fund would not be distracted by short-term market movements.

“In recent months, we have recovered a good part of our losses as the markets performed better,” he said.

“But as a long-term oriented investor, we will not be distracted. GIC will remain forward-looking and seize good investment opportunities that will help us achieve our goal of achieving a reasonable rate of return above global inflation over the long term.”

The 20 per cent investment loss in Singapore dollar terms for the financial year ending 31 March 2009 dragged down the real rate of return, in excess of global inflation, from 4.5 per cent to 2.6 per cent.

During the financial year, GIC’s investments in the Americas increased from 40 per cent to 45 per cent; those in Europe decreased from 35 per cent to 29 per cent; and in Asia they increased slightly from 23 per cent to 24 per cent as a result of the “normal selection of investment opportunities”.

Large investments made in early 2008 included UBS Ag and Citigroup, which according to the annual report were made “to capitalise on the unique business franchises of UBS in global wealth management, and of Citigroup in global consumer and corporate banking, especially in the emerging economies”.

Song said the financial crisis would bring fundamental changes to the investment landscape, requiring GIC to adapt its
investment strategy accordingly.

These changes included:

-Less funds available for leveraged
investments as lending institutions face more onerous capital adequacy
requirements and asset securitisation markets remain impaired;

-Regulatory intervention is likely to
dampen risk-taking, with hedge funds and private equity funds subject to
greater disclosure of their activities;

-Global economic growth will be higher in
the emerging than the developed economies. The developed economies will undergo
further deleveraging while the emerging economies will be compelled to engender
domestic demand;

-After a prolonged period of disinflation
in the global economy, there is greater risk of rising inflation. Government
and central banks might face political constraints in withdrawing recently
injected fiscal and monetary stimuli in an environment of high unemployment.