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GIC adopts more defensive portfolio

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Slowing global growth and trade tensions remain causes for uncertainty

Singapore sovereign wealth fund GIC has adopted a more defensive portfolio position amid slowing global growth and uncertainty from trade tensions.

While it has managed to keep its relevant rate of real returns from falling, it warned in its latest report that the investment landscape continues to point to low and volatile returns, with the case for investor caution remaining strong.

GIC also said it was taking care not to overpay for assets.

In its report, it said that its benchmark 20-year annualised rate of return remained at 3.4 per cent above global inflation.

But the world's eighth-largest sovereign wealth fund - with US$390 billion (S$529 billion) in assets under management, according to the Sovereign Wealth Fund Institute - expects this rate to be weighed down in the medium term, in part because the boom of the late 1990s will fall out of its 20-year window.  

GIC's 20-year rolling real return has been below 4 per cent for the last three years as well, although chief executive Lim Chow Kiat said yesterday that it is hard to predict what figures will look like, going forward.

"Because of the high valuations and this range of uncertainty, we are cautious about the investment prospects," he said, referring to how GIC is observing high-risk asset valuations that mask weak market fundamentals.

Tensions between the United States and China are among concerns informing the GIC's cautious view, Mr Lim said.

"It is not a short-term issue that goes away (and) because of that, we have maintained a more defensive portfolio position."

GIC has reduced its allocation to developed market equities, which stands at 19 per cent as at March 31. This is down from 23 per cent in the previous year.

In its report, GIC outlined how global growth will likely remain subdued, while political and policy uncertainties remain high.

Structural tensions are likely to continue as well, involving rising income inequality, populism and job displacements due to technology.

"As we face a low growth and increasingly uncertain world, we will rely even more on our long-term investment approach and global network of partnerships," said Mr Lim.

GIC group chief investment officer Jeffrey Jaensubhakij added: "One of the things we are most concerned about is the potential permanent loss, or permanent impairment, to investments."