GIC going for short-term risks to achieve better long-term gains

SINGAPORE - Singapore sovereign wealth fund GIC Pte Ltd, which manages more than US$100 billion of the city state's foreign reserves, said Friday it was preparing for more volatility in global markets amid a slowing Chinese economy.

GIC was unveiling a new investment approach it said would give it the ability to take short-term risks in order to achieve better long-term gains.

The change was announced as GIC said in its annual report that its assets earned a 4.0 per cent annualised real rate of return over the past 20 years, almost the same as last year's 3.9 per cent.

GIC said that while the global economy was facing challenges, it took a more bullish view on the United States as a major investment destination because of the improving economy there.

The "US is the... furthest along in terms of it no longer needing policy support", Lim Chow Kiat, GIC's chief investment officer, said in an interview with the Wall Street Journal.

"The US, in particular the private sector, time and again has shown that they are able to deal with crisis and challenges. It continues to produce many companies which are profitable and competitive," the WSJ quoted him as saying.

The fund also announced it was splitting its global portfolio into three segments.

Kelly Teoh, market strategist at IG Markets Singapore, said GIC's assets under management have become so huge that it needed to manage risks better.

"Splitting the portfolio into different parts makes good sense as it will allow them to control risk more effectively," Teoh told AFP.

"They will also probably be able to better manage the portfolio in a more risky climate, with different teams handling the different segments."

The assessment -- the second major review since GIC's inception in 1981 -- was carried out last year "in anticipation of a more challenging and complex investment environment", GIC said.

Like other investment funds, GIC needs to adjust to meet challenges following the global financial crisis and the eurozone's debt problems.

It is also faced with a slowing Chinese economy, the second biggest in the world.

In its annual report, GIC said the Americas region including the United States accounted for 44 per cent of its total portfolio, two per cent higher than the previous year.

Its exposure to Europe was a percentage point lower than the year to March 2012, at 25 per cent.

Its exposure to Asia also decreased by one percentage point to 28 per cent while the remaining three per cent was concentrated in the Australasia region.

GIC is one of two Singapore sovereign wealth funds, the other one being Temasek Holdings.

The net investment returns from GIC, the central bank, and Temasek account for about 15 per cent of the total government budget in Singapore.

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