SINGAPORE, July 24 — Singapore sovereign wealth fund GIC’s main gauge of investment return posted its weakest growth in four years, and said high interest rates, China economic difficulties and geopolitical tension would keep the investment environment challenging.

GIC on Wednesday posted a 3.9 per cent rise in 20-year annualised real return, its main performance gauge, compared to 4.6 per cent last year. The pace of growth was the slowest since its 2.7 per cent investment return in 2020.

The fund manages $770 billion assets according to estimates from the Sovereign Wealth Fund Institute, and is one of the three entities that manage Singapore’s reserves.

GIC ascribed the lower returns in the latest 20-year period to the exclusion of the 2004 fiscal year, when the equity markets staged an exceptional rebound following the dot-com crash.

"That exceptional year contrasted starkly with the lower returns of recent years due to weak returns in fixed income and global equities, particularly in emerging markets,” it added.

GIC does not disclose one-year results or the value of its assets under management.

In its investment report, GIC said that the higher-for-longer interest rates, macroeconomic challenges in China related to its property market, and heightened geopolitical tensions would limit investment gains.

"Moreover, medium-term return prospects remain low, and risk-reward less favourable, given elevated valuations across many risk assets, particularly in developed markets,” the firm said.

GIC still sees opportunities in the U.S., its single largest country exposure, regardless of the outcome of upcoming elections, its Chief Executive Officer Lim Chow Kiat told Reuters.

"We, of course, do not know what the outcome will be. But we do pay attention to what could potentially be the policies,” he said. In particular, he cited tariffs and trade restrictions that affect global growth and inflation.

GIC’s exposure to the U.S. grew to 39 per cent of its total investment portfolio in the year ending March 31, 2024, from 38 per cent the same period a year ago, according to its report.

The U.K and Eurozone rose to 5 per cent and 10 per cent from 4 per cent and 9 per cent respectively, while exposure to Japan alone and to Asia, excluding Japan, dropped to 4 per cent and 22 per cent from 6 per cent and 23 per cent respectively, its report showed. It does not disclose China’s share.

As China faces slower economic growth, GIC said it was becoming more selective and seeking opportunities including in advanced manufacturing and industrials, as well as niche areas such as residential-for-rent businesses.

GIC’s group chief investment officer Jeffrey Jaensubhakij said the aim was to ensure the fund was not as exposed to areas where it believes "the supply and demand prospects are not so good”.

Artificial intelligence

Apart from GIC, the other two entities that manage Singapore’s reserves are the central bank, the Monetary Authority of Singapore, and state investor Temasek.

Temasek said earlier this month that its net portfolio value had returned to growth with a 1.8 per cent gain, adding that profits from investments in the U.S. and India helped compensate for underperformance in China.

GIC said that it expected upside from the faster adoption and productive use of artificial intelligence, although it cautioned many early-stage AI businesses commanded high valuations.

Its AI investments include data company Databricks and data and AI governance platform Atlan.

GIC said the climate transition represented investment opportunities given the volatility affecting sectors such as green steel and battery storage. — Reuters