By P.R. Venkat
Singapore’s GIC Private Ltd. said Wednesday that portfolio diversification has become more challenging in a high-inflation economy and that the chances of stagflation materializing in the coming years have increased.
The sovereign wealth fund, which manages Singapore’s foreign-exchange reserves, will look to diversify its portfolio, which would include making investments in inflation-resilient assets and sustainability.
“Our mission is to preserve and enhance the international purchasing power of the reserves placed under our management by delivering good long-term returns above global inflation,” GIC said in its annual report for the fiscal year ended March.
The report showed that the 20-year annualized U.S. dollar nominal return of its portfolio was 7.0% in the period ended March. Its average real rate of return–over and above the global inflation rate–was 4.2% compared with 4.3% a year earlier.
GIC manages nearly $700 billion in assets and ranks as the world’s fifth-biggest sovereign wealth fund by total assets, according to the U.S.-based Sovereign Wealth Fund Institute. GIC doesn’t disclose its assets under management.
At the end of the fiscal year, the fund manager’s exposure to developed and emerging equities markets was down one percentage point each to 14% and 16%, respectively. However, GIC during period changed its asset mix–increasing investment in real-estate and private-equity.
Nominal bonds and cash remained the most represented assets, accounting for 37% of the total portfolio compared with 39% a year earlier.
While the economic recovery in 2021 faced challenges from Covid-19-related supply disruptions, the geopolitical tensions caused by the Russia-Ukraine war has broader global economic implications, GIC said, adding that equity markets are increasingly pricing in rising cyclical risks and aren’t discounting outright recession or a protracted military conflict.
“The ensuing political and policy uncertainties are making business and investment planning for the long term difficult,” GIC Chief Executive Lim Chow Kiat said.
If the uncertainty continues, the resulting frictions and the potential decoupling of the global economy would raise business costs and lead to higher investment risks and lower investment returns, he said.
“The combination of these factors has increased the risk of a stagflationary environment materializing in the coming years,” Mr. Lim said.
GIC, which owns stakes in some of the world’s biggest banks, including Citigroup Inc. and UBS Group AG, said it takes a long-term view of its investments and that technology will be an essential source of economic growth and investment opportunities in almost every sector.
The U.S. continued to dominate GIC’s exposure by geography, accounting for 37% of the fund’s portfolio. Asia ex-Japan was second at 25%.
Write to P.R. Venkat at firstname.lastname@example.org
(END) Dow Jones Newswires