Singapore’s GIC Ups Real Estate Allocation to 10% as Inflation Threat Looms

Singapore’s GIC increased its allocation to real estate assets to 10 percent during its most recent fiscal year, from 8 percent a year earlier, as the sovereign wealth fund frets over inflation and growing uncertainty.

For the 12 months which ended 31 March, bonds and cash continued to form the biggest slice of the fund’s asset mix with 37 percent, down from 39 percent a year earlier, according to its most recent annual report. Next on the list was private equity with 17 percent, up from 15 percent. For strategic reasons, GIC does not disclose its fund size; the Sovereign Wealth Fund Institute estimates the fund’s assets under management at $690 billion.

In a letter accompanying the report, GIC chief executive Lim Chow Kiat gave a sobering assessment of the global investment climate and warned of inflationary headwinds going forward.

“The investment landscape is shifting rapidly,” Lim said. “Profound uncertainties have emerged on multiple fronts. Years of concerns over deflation have turned into worries of elevated inflation, forcing economic policymakers to reverse stimulus policies.”

40-Year Run at Risk

The CEO noted that worsening inflation would reverse the gains made since GIC’s founding in 1981, a year in which inflation in the US approached 10 percent and long-term interest rates hit 14 percent. The subsequent 40-year run saw inflation and interest rates in secular decline.

“A portfolio that was invested fully in bonds would have returned 3.4 percent in real terms,” Lim said. “Today, with continued low interest rates, the same hypothetical portfolio is likely to earn just enough to beat inflation.”

For the 20-year period from 1 April 2002, GIC reported an annualised nominal return of 7 percent and an inflation-adjusted annualised real return of 4.2 percent.

The net investment returns contribution, which is derived from up to 50 percent of the investment returns from GIC, the Monetary Authority of Singapore and state holding firm Temasek, contributes significantly to the government’s budget and is estimated at S$21.6 billion ($15.6 billion) for fiscal 2022.

Powerful Property Investor

After a 2021 calendar year in which GIC poured $34.5 billion into 110 deals — nearly doubling its activity compared with 2020 — the fund has remained an active investor in recent months, including with some big-ticket real estate acquisitions.

In February, GIC confirmed its $1.3 billion purchase of Seibu Holdings’ portfolio of 15 Prince hotels and 16 additional leisure properties in Japan, judging the assets to be well-positioned to generate resilient returns from post-pandemic travel demand.

In April, the sovereign fund announced a deal to acquire a 75 percent stake in a set of commercial projects in London’s Paddington area for £694 million ($883 million). That same month, GIC was identified as the buyer when a fund managed by Wee Hur Holdings sold a nearly half-stake in an Australian student housing portfolio for A$567.9 million ($407.2 million).

In July, warehouse giant ESR agreed to sell a portfolio of nine industrial assets in China to a joint venture of the Hong Kong-listed group and GIC for $730 million.