Asia and other emerging economies will be a growing focus for the Government of Singapore Investment Corp (GIC) in coming years, said its investment chief yesterday.
Although the biggest chunk of its investments is still in developed markets such as the US and western Europe, 'we have in the last 20 years progressively reduced our exposure to the developed economies, and moved funds into the emerging economies, particularly Asia', Ng Kok Song, group chief investment officer at GIC, told reporters at the launch of its first ever annual report.
The fund manager charged with investing Singapore's foreign reserves has also diversified the company's portfolio, which comprised mainly bonds and equities in its early years, to include alternative asset classes such as hedge funds, property, infrastructure and private equity, he said.
As at end-March, investments in Asia made up 23 per cent of GIC's portfolio, which spans more than 40 countries. Twelve per cent was invested in Asia outside Japan.
'If you consider the size of the markets in Asia - although they've grown in recent years, they're still relatively small in global terms - I would say our portfolio is considerably overweighted compared to other global portfolios as far as Asia is concerned.'
'But we're likely to continue this process of increasing our exposure to the emerging economies, particularly in Asia, because this is where the growth potential is and this is our backyard.'
In Asia, 'we're seeing a lot of opportunities - in public markets but also in the private markets such as real estate', he added. Still GIC will not close its door to new investments in developed markets, he said.
Since May last year, GIC has raised 'substantial levels of cash in anticipation of a crisis in the global credit and housing markets', said GIC deputy chairman Tony Tan.
While the US may be facing its share of problems now, 'in the medium- to longer-term, the US economy remains one of the most innovative and flexible developed economies in the world and will continue to be an important part of the portfolio of any global investor, including GIC', he said.
In the GIC report published yesterday, Mr Ng also warned that 'looking ahead, we see a more challenging investment environment than what we have experienced since GIC's formation in 1981'.
'The powerful trend of disinflation that propelled the global capital markets over 25 years seems to have ended. In addition, there are risks stemming from severe macroeconomic imbalances in the world economy, the rising cost of energy and food, and continued de-leveraging of global financial institutions.'
Still, 'rising productivity and the potentially large domestic demand from the emerging economies, particularly China, India, Brazil and Russia' were positive forces that could cushion the impact of the current problems facing the world economy, he said.
About one-third of GIC's assets are managed by external fund managers and two-thirds are managed internally, said GIC, which only invests overseas.
It has more than 1,000 staff comprising some 20 nationalities. Fewer than half are Singaporeans. Fifty-seven per cent have less than five years of experience with GIC, while the rest have worked there for five years or longer.
While the fund says it invests solely to earn sustainable financial returns for the government's assets, it is not a passive investor.
'GIC will exercise ownership rights in the investments, as appropriate, to protect the financial interests of the government,' its report says.
This article was first published in The Business Times on September 24, 2008.
