SINGAPORE—Singapore's sovereign-wealth fund, one of the world's
biggest, has warned that it expects lower returns over the next
five to ten years because global economic growth and earnings don't
look promising.
GIC Pte Ltd., whose largest investments are in North America,
said ultralow interest rates have inflated asset prices in
developed markets. It said opportunities remained in developed and
emerging markets, although it cut its exposure to Europe in the
fiscal year to March 2015.
"The fall in interest rates to historic lows in most advanced
economies has caused prices of a broad range of asset classes to
rise," Lim Chow Kiat, GIC's group president and chief investment
officer, said in the fund's annual report for the fiscal year that
ended in March. "The sharp rise of asset prices, when the global
economy is still struggling to gain a firm foothold, makes the
investment environment particularly uncertain and
unpredictable."
Even China, which has faced waves of heavy selling in stocks in
the past month, remains a long-term investment destination for the
fund, GIC said. The fund said it still has a positive view on the
economy and believed in the ability of the government to carry out
overhauls. Recent volatility is "fallout of rampant market
speculation," Mr. Lim said.
"China in the last three years has demonstrated its seriousness
to reforms and we believe that the country's future is good," he
said.
GIC publishes its annual report following a lengthy audit
process. The sovereign-wealth fund is a major global player, and
its investments are closely watched. The fund said its investments
globally gave it a 4.9% 20-year real rate of return for the fiscal
year that ended March 31, or a 6.1% return over the same period in
U.S. dollar terms.
"The challenge posed by higher current valuations, low starting
yields and low potential future returns is common to all major
asset classes; public equities, private equity, bonds and real
estate," GIC said in its report.
GIC, which manages Singapore's foreign-exchange reserves and
bought stakes in Citigroup Inc. and UBS AG during the financial
crisis, oversees around $344 billion in assets, according to the
Sovereign Wealth Fund Institute, making it the world's
eighth-biggest fund.
The Americas remain GIC's biggest investment destination,
accounting for 43% of its assets last fiscal year, up from 42%.
GIC didn't disclose specific investments in its results, but the
Singapore fund in late 2014 made one of its single biggest overseas
investments when it bought U.S. warehouse operator IndCor
Properties Inc. for $8.1 billion from Blackstone Group LP. It also
bought a 5% stake in Nielsen N.V., the U.S. information and
television-ratings company, in a deal valued at more than $800
million.
The fund reduced its focus on Europe. Investments there made up
25% of its assets as of March, down from 29% previously. Asia,
meanwhile, rose in its portfolio, accounting for 30% of its total
holdings, up from 27%.
GIC still holds stakes in UBS and Citigroup and said that it was
comfortable with the lenders' execution of their business
strategies. "Their recent results reflect the progress made by
these banks," Mr. Lim said.
The sovereign-wealth fund doesn't usually disclose its
investments. It only reports on the performance of its portfolio
over 20-year, 10-year and five-year periods.
Since last year, GIC has been aggressively pursuing investment
opportunities, putting billions of dollars in areas ranging from
property to technology to businesses focused on consumers.
In addition to its holdings in IndCor and Nielsen, the Singapore
fund is also an investor in CGN Power Co., China's largest operator
of nuclear power plants. In May this year, GIC said that it will
invest $1.7 billion in Hutchison Whampoa Ltd.'s U.K.
telecommunications business.
GIC said in its latest annual report that it kept its exposure
to developed stock markets at 29%, while marginally cutting its
exposure to emerging-market stocks to 18% from 19% the prior year.
Investments in bonds and cash accounted for 32%, compared with 31%
last year, and exposure to real estate remained at 7%.
Over a five-year period, GIC said its annualized nominal return
in U.S. dollar terms was 6.5%. Over 10 years, it was 6.3%.
Write to P.R. Venkat at venkat.pr@wsj.com
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