GIC boosts allocations to China and emerging markets

The Government of Singapore Investment Corporation (GIC) has raised its allocations to China and other emerging markets in a bid to boost returns, which amounted to 3.9% in the year to March 31, up slightly from 3.8% in 2010.

The figures, released yesterday in the sovereign wealth fund’s annual report, are based on a 20-year annualised real rate of return that takes global inflation into account. GIC achieved a nominal annualised rate of return of 6.3% in the five years to March 31 in US dollar terms and 7.4% over 10 years.

While GIC’s assets under management have never been disclosed by the government, the Sovereign Wealth Fund Institute pegs them at $247.5 billion as of June.

The most significant change to the portfolio, says GIC, was an increase in allocations to Asia and Latin America. Emerging-market investments were raised “on the strength of their potentially higher returns and improved macroeconomic fundamentals”, says GIC chief investment officer Ng Kok-Song in the annual report.

This is in line with comments made by Ng in a speech in September in Singapore.

GIC has a 27% exposure to Asia, up from 24% last year. Of that proportion, North Asia (Greater China and South Korea) accounts for 12% — rising from 10% in 2010. Investment in Latin American doubled over the same period to 4%, up from 2%.

Meanwhile, US exposure was cut to 33% from 36%, while the European allocation was scaled down to 28% from 30%, as they carry an “uncertain” long-term outlook and carry “considerable macro financial and economic risks”, says Ng.

The geographical shift was largely a result of increased exposure to emerging-market equities, which stand at 15%, up from 10% last year. Developed-market equity investments fell to 34% from 41%.

Fixed-income accounts for 22% of GIC allocations, up from 20% in 2010, while alternative investments have risen by 1% to 26%. The remaining 3% of the portfolio is held in cash and currencies, the same proportion as last year.

Underlining its shift in focus, GIC earlier this month announced an internal management reshuffle that placed three high-ranking executives in leading emerging-market roles.

Teh Kok Peng, who headed special investments, now chairs the China business group, while Seek Ngee Huat, who oversaw GIC’s real-estate unit, now heads the Latin America business group. Quah Wee Ghee, previously the fund’s asset-management president, became chairman of the India business group.