When real estate can lead to better returns

Chris Howells

christopherh@mediacorp.com.sg

SINGAPORE

This comes as the sovereign wealth fund said it expects slower growth in developed economies for the next 10 years.

“The macroeconomic environment over the next 10 years would be characterised by slower growth in the developed economies in anticipation of these developments, GIC has decided to increase further out investments in the emerging economies, especially in Asia,” said Ng Kok Song, group chief investment officer, GIC.

He gave the comments at a CFA Institute conference on private wealth management in Singapore yesterday.

GIC expects global GDP to grow by 3.8 per cent this year, with advanced economies growing 2.4 per cent and emerging Asia growing at 8 per cent.

It also said industrial output in emerging Asia has recovered fully and now stands 12 per cent above pre-crisis levels, while developed economy output remains 2 per cent below levels seen two years ago.

“In terms of contribution to growth, Asia will contribute 50 per cent to global growth this year although its share of global GDP is 34 per cent. China’s contribution to global growth will be 26 per cent and India’s 10 per cent, compared with 15 per cent from the United States and 10 per cent from Euroland,” he added.

As of end March this year, GIC’s exposure to emerging market equities was 10 per cent, or about one fifth of its global equity portfolio.

In GIC’s annual report released on Monday, it said it had recouped most of its losses made during the financial crisis as stock markets have rebounded. The state investor added that gains in the last fiscal year lifted its 20-year nominal annual rate of return to 7.1 per cent from 5.7 per cent in US dollar terms.

While GIC had raised its investment in stock markets in developed countries, but it is increasingly turning its attention to emerging Asia.

Private wealth industry leaders also see Asia’s growth creating more affluence.

According to the CFA Institute, in 2009, high net worth individuals, those with assets greater than US$100 million ($132 million), rose 26 per cent on 2008.

This trend is likely to continue, with double digit growth in the number of high net worth individuals in 2011.

And Singapore has kept pace with that growth with a 33 per cent rise in the number of high net worth individuals here, said Steve Horan, head of professional education content and private wealth at CFA Institute.— The Government of Singapore Investment corporation (GIC) said real estate and private equity investments can lead to better returns than equities in its emerging markets investment strategy.

Perhaps it time to stop teasing the public and provide a clearer picture of the way our SWFs perform.

GIC recovers losses, improves returns

No figures given, but sovereign wealth fund’s portfolio is in good shape: GIC deputy chairman

May Wong

maywong@mediacorp.com.sg

SINGAPORE

No figures were given but the comment came as it released its latest annual report for the year ended March.

In it, GIC said it achieved an improvement in the 20-year nominal average annual rate of return to 7.1 per cent in US dollar terms from the 5.7 per cent in the previous year.

Its real rate of return in excess of the global rate of inflation was 3.8 per cent, up from 2.6 per cent a year earlier.

Dr Tony Tan, GIC’s deputy chairman and executive director, said its “portfolio is in good shape” because “it started buying back into equities in the second quarter of last year and the markets have since recovered”.

GIC said the value of its portfolio increased on the back of the strong global stock market recovery last year.

This is the third year that GIC, with investments estimated by some experts at $270 billion, is releasing its annual report.

Unlike Temasek Holdings, GIC does not disclose its asset size.

CIMB regional economist Song Seng Wun said he was not surprised at GIC’s latest financial results.

“It’s good that the reserve is gradually being built up. Yes, it will be subjected to the ups and downs of growth cycle and recession,” he said.

But what matters, he added, is for GIC to consistently do well over the long to medium term.

“Over time, as long as they continue to deliver steady performance, rather than spectacular, then I suppose that’s already a job well done.”

Last September, GIC said it had recovered more than half of its losses from the previous year. Because of the global financial crisis, GIC’s portfolio had suffered a 20-per-cent loss in Singapore dollar terms in the financial year to March 2009, compared to the previous year.

GIC said yesterday it would make two major adjustments to its investment policy — to increase its exposure to the emerging economies, especially those in Asia, and to set up a facility for a medium term asset allocation strategy to better respond to risks and opportunities.

Dr Tan said while the global recovery beyond this year would be subject to uncertainties such as asset bubbles and de-leveraging, these will not derail GIC’s long-term investment focus.

He added that the sovereign wealth fund remained confident that it would continue to achieve sustainable performance in the coming years.

GIC added it would hang on to its stakes in banking giants Citigroup and UBS. It is one of the largest shareholders in Citi, with a stake of 3.8 per cent, and reportedly the largest in UBS, with a stake of 6.4 per cent.

GIC said that as a long-term investor, it was prepared to stay with the two institutions because they had weathered the worst of the financial crisis and had returned to profitability.

Meanwhile, GIC made several senior staff appointments as of July 1 this year as a continuing effort to develop a strong leadership team.

They are deputy president of public markets Lim Kee Chong, real estate deputy president Goh Kok Huat, deputy president for special investments Tay Lim Hock and deputy chief risk officer Dr Chia Tai Tee.— The Government of Singapore Investment Corporation (GIC) said yesterday it had significantly recovered its losses from the previous year.

Five emerging markets in GIC’s sights

Millet Enriquez

emelita@mediacorp.com.sg

SINGAPORE

This greater focus on emerging markets is one of two adjustments that GIC has introduced in its investment policy — a deliberate progression from its 2003 strategy where it began investing in emerging market equities as an individual asset class.

At the briefing for its annual report yesterday, GIC’s chief investment officer Ng Kok Song said about 80 per cent of its emerging market investments will be accounted for by the five countries: China, India,\ Brazil, South Korea and Taiwan.

Analysts believe the increased investments in emerging markets, especially those in Asia, will put GIC in a sweet spot to achieve superior returns driven by the region’s growth.

“I think demographics are the key here. There is very strong underlying growth and I do see that growth still available over the next five to 10 years, compared to developed markets,” said Saxo Capital Markets strategist Tey Tze Ming.

Asia’s young population will drive demand and prices for real estate, equities, financials and insurance, he explained.

In evaluating emerging market investments, GIC deputy chairman and executive director Tony Tan said it would consider markets with large populations, those that are commodity-rich, in the early stages of industrialisation, and with good development and growth potential.

When investing in these markets, Mr Ng said GIC would not take the well-trodden path of public markets. Instead, it will look for the best value in private markets like real estate, private equity and infrastructure.

GIC’s asset mix as at end-March consisted 51 per cent of public equities in developed and emerging markets, 20 per cent of bonds, 25 per cent of alternatives such as real estate and private equity, while the rest are in cash and other investments.

GIC has also developed a medium-term strategy facility as its second adjustment to its investment policy. This will help its management calibrate GIC’s departure from the policy portfolio so it can respond more flexibly to significant risks or opportunities which arise from time to time.

Still, analysts warn of at least one headwind looming ahead.

“There’s always the threat of a global downturn. Even though the growth is attractive, emerging markets are vulnerable to heightened risk aversion like what we saw during the recent crisis,” said Mr David Cohen, director of forecasting for Asia at Action Economics.— Five emerging markets will form the centre piece for the overall strategy that the Government of Singapore Investment Corporation (GIC) will adopt in the next few years.

'TOUGH  SELL'  means  ? ? ? ?

dUmpIng  sUb-prIme  JAPAN  tOxIc  assets  ? ? ? ?

GIC may sell minority stake in logistics firm

SINGAPORE

According to a

GLP develops and manages properties valued at more than US$8 billion.

The report also quoted the sources — who attended a confidential meeting for fund managers arranged by a book runner — as saying that at the proposed valuations, the share offering would be a “tough sell” as the bulk of the assets are in Japan.

According to the sources, GLP is forecast to post net earnings of US$231 million next year and US$277 million in 2012.

The IPO’s bookbuilding is expected to start next Thursday and pricing is expected on Oct 8, the

If successful, it would also be the largest IPO in Singapore, slightly above SingTel’s $4-billion IPO in 1993.— The Government of Singapore Investment Corporation (GIC) may sell just a minority stake in the listing of Global Logistic Properties (GLP) that is expected to raise a record US$3 billion ($4.01 billion).Reuters report yesterday that cited unnamed sources, GIC may offer shares of its logistics unit at 1.3 to 1.4 times book value in its initial public offering.Reuters report said.

SME lender is Japan’s first bank failure in 7 years