GIC results mask ‘rough year’ as fund looks to boost resilience

The city state’s $690 billion fund reports solid returns over the long term as it positions itself for new challenges and opportunities ahead.
GIC results mask ‘rough year’ as fund looks to boost resilience

Singapore sovereign wealth fund GIC has achieved its best investment results in eight years, based on its annualised rolling 20-year real rate of return, the metric by which it measures its performance.

Despite inflation and other macro headwinds, the fund’s 20-year return rate rose to an inflation-adjusted 4.6% during the year ended March 2023, up from 4.2% the previous year.

GIC said the increase meant that the fund’s two-decade rate of return had topped its calculation of the global rate of inflation during the past two decades.


Meanwhile, Singapore’s other big state investment vehicle, Temasek, earlier this month posted its worst annual results in seven years.

Gary Smith, Sovereign Focus

Gary Smith, managing director of advisory firm Sovereign Focus, pointed to several factors that could indicate that GIC’s year-to-year performance may have been closer to that of its peer.

“Temasek is reporting in local currency and GIC is reporting in US dollars, so for Temasek, there was almost certainly an adverse currency effect, as the Singapore dollar was strong” he told AsianInvestor. “And [GIC’s] 20-year rolling average return masks a lot of things.”

Leo Krippner, a research fellow at Singapore Management University’s Sim Kee Boon Institute, said: “If we had access to the one-year numbers, I’m sure it would be in negative territory … like everyone else.”


GIC said in its report for the period that its diversified portfolio and cautious investment approach had helped to insulate it from last year’s market correction, and that it had maintained that stance throughout the 2022-23 period amid high asset valuations and an uncertain macro environment.

GIC chief executive Lim Chow Kiat signalled in a statement that the fund would persist with an investment approach that prioritised protection from exogenous shocks.

A GIC spokesperson told AsianInvestor: "While headline inflation is beginning to ease, driven by lower commodity and goods prices plus easing supply constraints and demand, underlying inflation remains sticky. 

"A world with ‘higher for longer’ interest rates will be difficult for many businesses, and, coupled with other headwinds, makes for an uncertain investment environment. To navigate this, GIC will continue to focus on increasing the resilience of our portfolio and finding investment opportunities with stable, long-term returns."

Infrastructure is a particular focus for GIC, which said in its report that infrastructure assets could pass on some cost inflation, and that regulations often build in inflation protection.

"[In] infrastructure ... our focus is on businesses which generate stable, predictable and oftentimes inflation-linked cashflows across macroeconomic cycles," the spokesperson said. 

Leo Krippner,
Singapore Management University

Krippner acknowledged that infrastructure assets were more resistant to the effects of inflation, but only to a point.

“They’re more inflation-resilient, so long as the infrastructure has got pricing power. But there’s no getting away from the fact that if you’ve already got exposure to infrastructure, you’ve probably taken a bit of a hit with rising bond yields,” he said.

Smith said GIC’s infrastructure focus was key to its business in more ways than simply being an inflation hedge.

“Revenues from infrastructure are often [consumer price] index-linked – ‘inflation-plus’,” he said. “And it also ties in with GIC’s commitment to sustainable investment, as well. Some of their renewable energy stories are infrastructure stories. Green infrastructure, wind farms, solar – all of those naturally fold into that.”


In addition to concentrating on infrastructure, private equity – one of GIC’s main investment themes in recent years – appears set to remain a priority area for the fund.

Within PE, GIC said it would increase its investments in early-stage energy transition opportunities, although that forms only part of the broader PE picture.

"In a higher funding cost environment, investors like GIC may look at alternatives that can generate better returns," the spokesperson said. "Private credit is one area where the risk-reward is very attractive due to rising risk-free rates and the lack of available funding or liquidity from banks."

Smith said funding costs had dampened prospects for some PE investors, but that there was upside for others.  

“All the maths around PE has changed as interest rates have been so hiked,” he said. “[GIC] is talking about the fact that some PE investors were over-invested, and that there were fire sales going on. GIC is in a position to take advantage of that.

“PE may be in for a challenging couple of years with higher interest rates, but there’s a point at which secondary sales become interesting. GIC sees hurdles for PE, so bargains may come its way.”

GIC’s geographical allocations have shifted since its last annual results release, with a 1% increase to the US to reach 38% and a 1% addition to Europe to 9%. Conversely, its Asia-ex-Japan allocations have dropped 2%, from 25% to 23%.

The spokesperson said: "While we monitor our exposures across regions, GIC does not have a top-down geographic allocation strategy. Instead, our primary focus is on asset allocation, with the geographical mix being a reflection of where the bottom-up opportunities are."

Krippner said the shifts between regions were so incremental that they were unlikely to reflect any deliberate change in allocations. He said the same of GIC’s 1% reduction in allocations to developed market equities, to 13% from 14% of its portfolio, and the 1% increase in emerging market equity allocations, to 17% from 16%.

“These changes are small enough that they more likely reflect the revaluation of different parts of the portfolio rather than being an ‘act’ of allocation to or from any of those countries or even sectors,” he said.

“If you look at GIC’s report from last year, they knew that the environment would be challenging in 2023, and they mentioned that it was going to make an impact,” he said. “They were basically not really looking to do anything very active during that year.

“They probably had a rough year, along with everyone else,” he said. “I don't think anyone else would come to any other conclusion.”

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