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Kevin Lim & Harry Suhartono
Singapore’s $200 billion-plus sovereign wealth fund GIC will likely reveal next week it is moving more money into property, resources and Asian assets after recently cutting its exposure to major Western banks.
The Government of Singapore Investment Corp, or GIC, is due to release its annual report for the year to March 2009, only the second year the fund will make the report public.
GIC is the world’s fourth largest sovereign fund after Abu Dhabi, Saudi Arabia and Norway, according to Deutsche Bank. It is a major investor in financial giants UBS and Citigroup, even after halving its stake in the U.S. bank earlier this week to under 5 percent.
While GIC does not reveal the size of its assets or list its biggest investments, unlike sister fund Temasek, how GIC allocates its funds by geography and asset class will provide cues about its strategy, investment outlook and risk appetite. It will also outline the proportion of cash in its portfolio, which it could use for new investments.
About 44 percent of GIC’s portfolio was in stocks and another 26 percent in fixed income at end-March 2008.
Analysts said GIC may park more money into physical property, which accounted for 10 percent of assets last year, and may have stepped up its investment in natural resources, which accounted for just 2 percent of assets.
“GIC’s real estate side will perhaps become more busy these days, given the huge collapse in global property, which will give GIC a chance to spot opportunities, especially in the U.S,” said Song Seng Wun, economist at Malaysian bank CIMB in Singapore.
Other sovereign wealth funds have in recent months cut their holdings in Western banks, with China in particular increasing its focus on resource assets.
China Investment Corp (CIC) this week took an $850 million stake in Singapore-listed trading and commodities firm Noble Group and made a $1.9 billion investment in Indonesian coal miner PT Bumi Resources Tbk.
GIC still owns notes in UBS that can be exchanged for over 6 percent of the Swiss bank’s shares, but sold half its stake in Citigroup this month, realising a profit of $1.6 billion.
It is likely sitting on a substantial loss on its 11 billion Swiss franc ($10.7 billion) investment in UBS.
U.S. vs Asia
GIC has been increasing its investments in Asia in the past decade, although the United States was its main investment destination accounting for 34 percent of assets in March 2008.
David Cohen, director of Asian forecasting at Action Economics, said it made sense for GIC to shift more of its assets to Asia, given the Singapore fund’s familiarity with the region as well as the better growth prospects.
“I think they probably see Asia as their comparative advantage.. it is not a bad place to be investing your money,” he said.
“They are not going to drastically change the allocation overnight, although it could mean GIC gradually managing more of its assets in-house and allocating more funds to Asia-based managers.”
GIC has outsourced about one-third of its funds to external managers, helping Singapore become a major Asian funds centre over the past decade.
GIC will also state its average return over the past 20 years, which most likely dipped from the 7.8 percent it reported last year.
More interesting to investment bankers and fund managers will be the amount of cash held by GIC, which stood at 7 percent at end-March 2008, despite the Singapore fund’s near-$18 billion bets on UBS and Citigroup in December 2007 and January 2008.
“In this current environment of low interest rate, holding a lot of cash would not exactly be maximising your return,” said CIMB’s Song. ($1=1.029 Swiss Franc)