GIC Private Limited Embarks on a New Framework for Investing
Posted on 08/02/2013
In 2012, Singapore’s GIC Private Limited traversed on a path to analyze their investment framework. The underlying mission was how the Singapore sovereign fund could maintain to reap long-term real returns in a complex investment world. Certainly, the global financial crisis weighed in on their decision to change their beliefs and philosophy on investing. Taking a step back, during the first two decades of the GIC’s existence, the sovereign wealth fund focused on liquidity. With the Cold War still intact, the fund was relatively conservative compared to many public pensions. In the 2000s, the GIC had amassed enough sovereign wealth to increase their risk tolerance. Looking abroad, they chose to embrace the endowment model of investing. Even though they never achieved a total allocation copy like David Swensen from Yale’s endowment, they made major inroads in private equity and illiquid holdings.
Today, the GIC is involved in mega buyout deals.
In any case, on April 1, 2013, a new framework was agreed upon and implemented – creating a reference portfolio. The reference portfolio is 65% global stocks and 35% global bonds. In the same hemisphere, the New Zealand Superannuation Fund (NZSF) is another sovereign wealth fund that has adopted the reference portfolio under Adrian Orr. For the NZSF, currently the breakout is 70% global stocks, 5% local stocks, 5% listed real estate and 20% fixed interest.
GIC Policy Asset Mix 2013
| Asset Class | Weight |
|---|---|
| Developed Markets – Stocks | 31% |
| Emerging Markets – Stocks | 15% |
| Fixed Income | 21% |
| Private Equity and Infrastructure | 11% |
| Real Estate | 10% |
| Absolute Return Strategies | 3% |
| Natural Resources | 2% |
| Cash and Others | 7% |
Source: GIC Private Limited Annual Report 2012-2013
The GIC hopes to achieve better long-term returns from the reference portfolio framework through asset allocation strategies. Other factors include portfolio construction and diversification – being center to the adopted strategy. The final addition to the framework is the development of an active portfolio which permits GIC management to add value through finding active, skill-based strategies.
Another big change in 2013 is the disposal of the Investment Review Committee who had oversaw large investment decisions. This committee has been replaced by the Investment Board who will oversee the GIC’s management active strategies. Last, the GIC’s portfolio had annualized nominal rates of return of 2.6% over 5 years (USD).