Singapore’s $744bn fund eyes deals in a low-return world

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As the world’s most captivating sovereign wealth fund celebrates its 40th birthday, it has never had so much money to manage – or faced more difficulty managing it.

Two pillars of investment that have helped fuel the growth of GIC Pte in Singapore. – China and bonds – are beleaguered by inflation, geopolitics and regulatory repression. Meanwhile, the national budget is demanding ever more revenue, forcing GIC to generate strong returns, causing one of the biggest asset pivots in its history.

“We expect the challenges to be large and varied and not to have a lot of historical precedents,” CEO Lim Chow Kiat, a 28-year-old GIC veteran, said in a rare interview. “The last time we had a serious inflation problem, I was just born.”

GIC was founded in 1981 to help manage the excess reserves of a 16-year-old country. Launched with a handful of local employees, borrowed office equipment and three US corporate fund managers, it has since grown into a quiet giant in global finance.

Even by secretive SWF standards, GIC stands out for its wealth and discretion. It does not publish annual returns or say how much it manages, although data providers’ estimates put it at $744 billion. New rules passed in parliament could increase that amount to nearly $900 billion, making it the third-largest such fund after Norway and China.

With this size comes increased challenges to maintain returns and find new assets to support, while funding the Singapore government. Since 2018, investment gains from GIC, the central bank and state investor Temasek Holdings Pte. were the largest contributor to the national budget. While some peers are used as rainy day funds, the GIC is an integral part of the city-state as an aging population, rising health care costs and low tax rates threaten to strain finances.

GIC has seen a nominal gain of 6.8% every year for the past two decades, on par with many of its peers, according to Global SWF, a research firm. Long-term yields were boosted by a massive 38% jump in the year that ended last March, Global SWF said.

“The important thing for GIC is to maintain stable investment returns,” said Lim Siong Guan, the group’s former chairman who helped shape its current strategy.

China has played a key role in GIC’s growth. He made an early decision to invest there when much of the world was holding back, starting in the 1980s when former prime minister and first GIC chairman Lee Kuan Yew predicted China would prosper. as its economy opens up.

“He was the one who kind of alerted us and said ‘China’s rise is irreversible,'” said Ng Kok Song, who stepped down as chief investment officer in 2013.

Pushing into China’s underdeveloped markets was a difficult task. GIC has traveled the country, supporting everything from Shanghai office buildings and agricultural banks to manufacturers of toilets and washing machines. The investments have transformed what began as a Western-focused fund into a diversified portfolio, with Asia now accounting for 34% of holdings, matching the United States.

Bets on tech giants like Alibaba Group Holding and Xiaomi Corp. ahead of their IPO have generated huge windfalls, although China’s gains are now under threat on multiple fronts amid a protracted standoff with the United States.

“That’s certainly a concern – if a fork is going to happen, it will affect global investors, because it’s going to be a lot harder for you to have that freedom to just choose,” said Mr Lim, 51, of the office of the 37th floor of GIC at the business district.

The risks are also increasing in China. GIC was a major investor in Luckin Coffee Inc., before selling its stake ahead of an accounting scandal that gutted its stock price. Last year, Singapore acknowledged that GIC and Temasek suffered losses after Beijing cracked down on the online education space. GIC was also an early investor in Ant Group Co., the fintech giant that was forced to scrap its $35 billion listing amid an industry crackdown.

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