By P.R. Venkat
Singapore’s GIC said Wednesday that persistent inflation could turn bond-equity correlations positive, thereby not giving the same protection that an investment portfolio would have otherwise given through such diversification.
The sovereign-wealth fund, which manages Singapore’s foreign-exchange reserves, will continue diversifying its portfolio, including investing in inflation-resilient assets and sustainability.
“This is why we had raised liquidity and focused on finding investment opportunities with stable long-term returns, including investments in real estate and infrastructure, to protect our portfolio from inflation,” GIC Chief Executive Lim Chow Kiat said, detailing the fund’s performance for the year ended March.
Apart from the challenges of high inflation and geopolitical risk, generative artificial intelligence and more extended periods of high interest rates will be new disrupters the world will grapple with, he said.
“AI has the potential for creative destruction and could also deliver productivity improvements that help keep inflation in check,” Lim said, adding that the technology also brings with it worries about cybersecurity and societal norms.
In its annual report, GIC said the 20-year annualized U.S. dollar nominal return of its portfolio was 6.9%. After accounting for global inflation, the sovereign-wealth fund’s annualized real return was 4.6%, compared with 4.2% a year earlier.
GIC, which owns stakes in some of the world’s biggest banks, including Citigroup and UBS Group, said it takes a long-term view of its investments.
The sovereign-wealth fund manages about $690 billion in assets and is the world’s seventh biggest 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 asset allocation to developed and emerging equities markets was a combined 30%. Its nominal bonds and cash portfolio fell 3 percentage points to 34% during the year, while its real-estate portfolio rose to 13% from 10%.
Even though real yields have risen to attractive levels, valuations of risk assets remain relatively high, according to the report.
“This weighs down forward returns of risk assets, making risk-reward less compelling,” GIC said.
Write to P.R. Venkat at [email protected]
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