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Singapore’s GIC Warns of Tough Investment Climate

GIC, Singapore’s dynamic sovereign wealth fund, warns in its annual report of a more “challenging” investment environment ahead.

The next decade could be tough, according to the S.E. Asian SWF, as global central banks change policy, raise interest rates, and wind down QE (Quantitative Easing) programs. In other words, cheap money and easy credit could be on the verge of drying up whereas cash would reign supreme.

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The fund manages roughly US$300 billion which is quite impressive for the country’s relative size. In comparison, only China and a couple oil rich countries manage more.

GIC, as well as others, believe that the prices of all major asset classes had been inflated by QE programs, and now are faced with bleak future returns as central banks curtail these programs by normalizing interest rates.

CIO Lim Chow Kiat said: “Asset yields are low, and all major asset classes are facing potentially low future returns.”

The United States Federal Reserve is expected to end its market stimulus program in October, ending a 5-year play that basically inflated market and asset prices back to pre-crisis levels. The European Central Bank also has discussed reevaluating its own measures by year’s end—no doubt triggered by the potential aftermath of the US Fed closing the door on QE. In reality, every single central bank in the world will need to reassess their current strategy if a US rate hike is inevitable this year or next.

GIC rebalanced its portfolio last April, as such the portfolio currently reveals holdings of: 31% nominal cash and bond holdings, 29% developed market equities, 19% emerging market equities, 5% inflation-linked bond exposure, 7% allocation to real estate, and 9% private equity holdings.

There were no significant changes in its geographical holdings: 42% Americas, 29% Europe, and 27% Asia.

H/T: Investment & Pensions Europe