SINGAPORE - The Government of Singapore Investment Corp (GIC), the country's largest wealth fund, has reduced its exposure to stocks since mid-2007 and now holds more than 7 percent of its portfolio in cash, the Straits Times newspaper reported on Monday.

GIC, which has an estimated $300 billion in assets, is currently 'underweighted in equities, overweighted in cash and cash equivalents,' Deputy Chairman and Executive Director Tony Tan told the paper in an interview.

The fund's cash reserves had risen to above 7 percent of its portfolio in the second half of last year, he added, indicating GIC has slightly increased its cash holdings since March 2008.

GIC said in September it held 7 percent of its portfolio in cash and another 26 percent in fixed income when it made public its annual report for the 12 months to March 31.

That was after the fund bought nearly $18 billion worth of convertible notes in Citigroup and UBS in late 2007 and early 2008 to help recapitalise the two banks.

Tan said the current global economic downturn will last for some time and he did not expect GIC, or any large investor, to reproduce the fund's annual average real return of 4.5 percent average in the past 20 years in Singapore dollar terms.

In a speech made at Davos on Friday, Tan said 'unleveraged global investors' such as sovereign wealth funds will pay a more important role in future as hedge funds and private equity find their activities constrained by tighter borrowing restrictions.

Western governments, which have taken large stakes in banks to prop up their financial systems, will eventually have to 're-privatise' assets on a massive scale and will need to attract long-term institutional investors like sovereign funds when markets stabilise, he said.