Singapore sovereign wealth fund GIC Pte on Tuesday reported its worst rate of return since the financial crisis in 2009 and warned that the global pandemic could further affect its performance.
GIC’s 20-year annualised rate of return, the main gauge of its performance, stood at 2.7 per cent for the year to March 31, 2020, down from 3.4 per cent announced last year.
GIC’s rate of return bottomed to 2.6 per cent in 2009, wiping out one-fifth of the fund’s value in a single year.
GIC stressed that the fall was due to the dropping out of tech-bubble gains 21 years ago from its metric and, to a smaller extent, the market sell-off over the last year.
“This year, the 20-year annualised real return fell to 2.7 per cent, largely due to a very strong tech-bubble year return in FY1999/2000 dropping out of this 20-year window, and to a lesser extent, the drawdown of global markets over the last year,” it said in a statement.
GIC said it uses the rolling 20-year real rate of return as its primary metric for evaluating investment performance as it represents the fund’s mandate to preserve and enhance the international purchasing power of the reserves under its management over the long term.
The sovereign wealth fund said COVID-19 was an unforeseen shock to the global economic system and revealed and accentuated specific long-term vulnerabilities and trends, which GIC had observed for several years.
“The global health and economic outlook remains challenging. In this environment, GIC continues to proactively seek opportunities that will generate good long-term risk-adjusted returns, as well as ensure that the total GIC portfolio remains resilient to uncertain outcomes,” said Lim Chow Kiat, Chief Executive Officer of GIC.
Lim added that the timing and shape of the recovery remain “highly unclear” because of the current infection rate.
In the first quarter of 2020, the global equity markets fell sharply as economic growth plunged, following severe disruptions from the COVID-19 outbreak. However, GIC said the impact on its portfolio was cushioned by its “diversified portfolio approach,” and in particular, its cautious stance in recent years.
GIC’s view is that the COVID-19 crisis will bring fundamental changes and even more uncertainty to the global investment environment.
“However, Asian economies are likely to adapt their growth strategies and business models over time, and intra-regional trade will strengthen,” Lim added. “How well governments respond to the health, economic, and financial challenges will be key drivers of their country’s recovery.”
The GIC portfolio return over the 20 years was 4.6 per cent per annum in nominal USD terms. Over 10 years, the GIC portfolio returned 5.2 per cent per annum, as it included the prolonged upturn in the capital markets after the 2008 Global Financial Crisis.
Over a five-year period, the GIC portfolio return slowed to 3.9 per cent in line with the broader asset markets.
GIC ranks as the world’s sixth-biggest sovereign investor with $440 billion in assets, according to the Sovereign Wealth Fund Institute.
Editor’s Note: The opening paragraph was updated to reflect that the return is GIC’s lowest since 2009.