Singapore wealth fund GIC sees western banks healing, could invest more

PHOTO: Singapore wealth fund GIC sees western banks healing, could invest more

Singapore sovereign wealth fund GIC, the single biggest shareholder of UBS, said it believes the western banking industry is healing and it has the capacity to invest more in the financial sector.

GIC Private Ltd, which holds a 6.45 per cent stake in UBS AG along with a minority stake in Citigroup, said both banks have seen an improvement in their profits and it is happy with the shift the banks have made to their business models.

"Both banks have announced quite a number of changes to their strategies, the mix of businesses, so we clearly have looked at them and have discussed with the management," said GIC Chief Investment Officer Lim Chow Kiat.

"We are happy with these changes and we remain confident that they can be executed," he added in a briefing ahead of the release of GIC's annual report on Friday.

Asked if the fund has the capacity to invest more in the financial sector, Lim said: "we certainly do".

His comments are likely to be closely watched by investors awaiting the expected sale by the UK government of its stakes in Lloyds and Royal Bank of Scotland.

In the annual report, the fund said its annualised nominal rate of return over the last five years to end March 2013 was 2.6 per cent in US dollar terms, down from the 3.4 per cent it reported last year.

GIC is the world's fourth largest sovereign wealth fund with around $250 billion in assets under management, according to Institutional Investor, an industry publication.


Lim said he maintains a positive long-term view on China but is wary of risks in the near-term related to shadow banking and excess capacity in its economy.

"What's happening there is they are trying to reform the economic system, change the mix of the GDP and are taking proactive steps in doing so, so it's very positive for the long term," he said.

"As they do that, they run into the risks of losing too much growth, losing too many jobs, as they try to change," he added.

GIC also unveiled a new structure for how it will organise its holdings, putting them into two portfolios, one known as the policy portfolio and the other as the active portfolio.

The fund won't give details on the relative size of the two investment pools, but say the policy portfolio will generate the bulk of its risk and returns. That one will mainly invest in equities, with a smaller allocation for bonds, cash and real estate.

The active portfolio will include a wider mix of asset classes.

"The policy portfolio is the long distance runner, generating the bulk of returns; the active portfolio is our attempt to do better than the policy portfolio through skill-based strategies," said GIC chief economist Leslie Teo.

This is only the second time since GIC was founded in 1981 that it has reviewed its overall investment approach.

Unlike sister fund manager Temasek Holdings, which focuses on equities, GIC adopts a more conservative investment strategy with the long-term goal of beating global inflation.

The fund announced that its annualised, rolling 20-year real rate of return for the period ending March 2013 was 4.0 per cent, up just a touch from last year's rate of 3.9 per cent.

The fund said its five-year performance was affected by a weaker performance in alternative asset classes such as real estate and infrastructure, which have taken longer to recover from the financial crisis than equity and bond markets.

The distribution of its investments across asset classes was largely unchanged, with the biggest change being the proportion in fixed income rising to 21 per cent from 17 per cent, while its cash holdings dropped to 7 per cent from 11 per cent.