Singapore’s GIC warns of lower investor returns for next 20 years

SINGAPORE - Singapore’s GIC Pte Ltd, one of the world’s largest sovereign wealth funds, has warned that investment returns over the next two decades will be “significantly lower” than in the past 30 years.

 In its annual report released today, its 34th anniversary, GIC said it expects a difficult investment environment with modest growth prospects, greater uncertainty, and more volatility in the macro economy and markets.
 GIC has recorded an average return of 4% above the global inflation rate over the 20 years to March 2016 from six investment categories. These include real estate, which made up 7% of its portfolio.
GIC says its funds under management “exceeded US$100 billion” at March 2016, but the SWF Institute lists it as the 13th largest sovereign wealth fund in the world, with some US$344 billion under management at June 2015.
 Lim Chow Kiat, GIC’sDeputy Group President and Group Chief Investment Officer, warned that the steady returns achieved since 1996 will be challenged by uncertainties brought on by the low-yield environment all investors are facing.
 "These difficult investment conditions can stretch for the next 10 years,” he said.
 GIC outlined three scenarios that will impact on returns in future years – “back to normal” global growth; stagnation; and stagflation.
 “We expect that, over 20 years, taking into account both starting valuations and the fundamentals in this ‘back to normal’ world, real annualised returns on global bonds would be 0.1 per cent and those of global equities around 3%.
 “The global economy could be plunged into stagnation for a long period of time, either by a US recession, the Eurozone break-up or a China hard landing.”
 The report said: “Political and social forces will also push for deglobalisation , resulting in trade and investment restrictions.”
 GIC said that high debt, easy monetary policy and populism could lead to stagflation in the global economy.   www.gic.com.sg (ATI).