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GIC reports annualised real return of 4.1%

GIC has reported a 20-year annualised real return of 4.1 per cent for the year ending in March 2014 - comparable to the 4 per cent achieved in the previous year.

SINGAPORE: GIC has reported a 20-year annualised real return of 4.1 per cent for the year ending in March 2014 - comparable to the 4 per cent achieved in the previous year.

These are returns on the foreign reserves of the Singapore government. The real rate of return is what is made over and above the inflation rate. In nominal USD terms, this translates into an average nominal return of 6.5 per cent over the same period.

In releasing its latest annual report, the sovereign wealth fund, which oversees over US$100 billion, said it expects long term real rates of return to remain modest. Over the last 20 years, inflation has reduced the purchasing power of investors by about 2 to 3 per cent annually. And this has made it challenging for investors like GIC to deliver returns that beat inflation.

In the report, GIC noted that the investment environment for the next ten years will be challenging for global investors like themselves, as they compete in a more crowded and uncertain investment environment. One of the reasons for this is that as monetary policy normalises and interest rates rise, financial assets will see diminished returns.

GIC also says that while asset prices have risen strongly since 2009, the outlook for economic growth and earnings has not improved as much. Compared to a year ago, GIC has cut down its exposure to developed market equities and increased exposure to emerging market equities and bonds.

On a geographical basis, there were no major changes to its investment allocation. Exposure to the Americas was highest at 42 per cent, followed by Europe and Asia - at about a third each.

GIC is ranked by the Sovereign Wealth Fund Institute as the eighth largest sovereign wealth fund in the world.
 

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