By P.R. Venkat
SINGAPORE--Singapore's sovereign-wealth fund, one of the world's
biggest, has warned that it expects lower returns over the next
five to 10 years, because global economic growth and earnings don't
look promising.
GIC Pte Ltd., whose largest investments are in North America,
said ultralow interest rates have inflated asset prices in
developed markets. It said opportunities remained in developed and
emerging markets, although it cut its exposure to Europe in the
fiscal year to March 2015.
"The fall in interest rates to historic lows in most advanced
economies has caused prices of a broad range of asset classes to
rise," said Lim Chow Kiat, GIC's group president and chief
investment officer in the fund's annual report for the fiscal year
that ended in March. "The sharp rise of asset prices, when the
global economy is still struggling to gain a firm foothold, makes
the investment environment particularly uncertain and
unpredictable."
GIC publishes its annual report following a lengthy audit
process.
Even China, which has faced waves of market routs in the past
month, remains a long-term investment destination for the fund, GIC
said.
GIC is a major global player, and its investments are closely
watched. The sovereign-wealth fund said its investments globally
gave it a 4.9% 20-year real rate of return for the fiscal year that
ended March 31, or a 6.1% return over the same period in U.S.
dollar terms.
"The challenge posed by higher current valuations, low starting
yields and low potential future returns is common to all major
asset classes; public equities, private equity, bonds and real
estate," GIC said in its report.
GIC, which manages Singapore's foreign-exchange reserves and
bought stakes in Citigroup Inc. and UBS AG. during the financial
crisis, oversees around $344 billion in assets, according to the
Sovereign Wealth Fund Institute, making it the world's
eighth-biggest fund.
Still, the Americas remain GIC's biggest investment destination,
with the region accounting for 43% of its assets last fiscal year,
up from 42%.
GIC didn't disclose specific investments in its results, but the
Singapore fund in late 2014 made one of its single biggest overseas
investments when it bought U.S. warehouse operator IndCor for $8.1
billion from Blackstone. It also bought a 5% stake in U.S.
information and television ratings company Nielsen N.V., in a deal
valued at over $800 million.
Its focus on Europe fell however, with its investments there
making up 25% of its assets as of March from 29% previously. Asia,
meanwhile, rose in its portfolio, accounting for 30% of its total
holdings from 27%.
On China, GIC said that it continues to maintain a positive view
on the economy and believed in the ability of the government to
carry out overhauls. "GIC has a long-term view as the country and
the recent volatility in the stock market is a "fall-out of rampant
market speculation." "China in the last three years has
demonstrated its seriousness to reforms and we believe that the
country's future is good, " Mr. Lim said.
GIC still holds stakes in UBS and Citigroup and said that it was
comfortable with the execution of the business strategy of its two
investee banks. "Their recent results reflect the progress made by
these banks," Mr. Lim said.
The sovereign-wealth fund doesn't usually disclose its
investments and only reports on the performance of its portfolio
over 20-year, 10-year and five-year periods.
Since last year, GIC has been aggressively pursuing investment
opportunities putting in billions of dollars in various asset
classes spanning from property to consumers to technology
companies.
In February this year, GIC bought a 5% stake in U.S. information
and television ratings company Nielsen N.V., in a deal valued at
over $800 million. The Singapore fund is also an investor in
China's largest nuclear power plant operator CGN Power Co. Ltd.,
and in May this year, GIC said that it will invest $1.7 billion in
Hutchison Whampoa Ltd.'s U.K. telecommunications business.
GIC said in its latest annual report that it kept its exposure
to developed stock markets to 29%, from the same period last year,
while marginally cutting its exposure to 18% from 19% in
emerging-market stocks. Investments in bonds and cash accounted for
32%, compared with 31% last year, and exposure to real estate
remained at 7%.
Over a five-year period, GIC said its annualized nominal return
in U.S. dollar terms was 6.5%; over 10 years, it was 6.3%.
Write to P.R. Venkat at venkat.pr@wsj.com