GIC to shift sights to private equity(2)

Singapore’s largest sovereign fund has increased its investments in private equity and real estate in recent years – a trend likely to continue owing to the turmoil in the financial markets. The change was revealed as part of its first performance report, which also shed rare light into the GIC’s structure.

The Government of Singapore Investment Corporation, which is estimated to have assets worth more than $300 billion (€205 billion), is turning its focus to emerging markets and private equity after sustaining big losses on the stakes it purchased in UBS and Citi.

The firm said at a media conference yesterday in Singapore that it is looking for more secure longer-term investment performance after observing the public market woes tied to the Asian financial crisis, the dotcom slump and the contracting global credit markets of the past year.

UBS shares have fallen 53 percent since the firm’s 11 billion Swiss francs ($10.1 billion; €6.9 billion) investment in December 2007, and Citi’s shares have declined 26 percent since the fund made its almost $7 billion investment in January.

Forty-four percent of the firm’s portfolio is invested in public equities and its investment in alternative assets like private equity and real stands at 23 percent. Of this, 8 percent is invested in private equity, venture capital and infrastructure, and 10 percent in real estate. GIC said in its first performance report that in recent years, it has accelerated the pace of its real estate and private equity investments.

GIC invests in private equity and infrastructure through GIC Special Investments, its private equity arm. Its private equity portfolio includes investments in buyouts, venture, mezzanine debt, growth capital and secondary fund investments, the firm said.

Seventy-five percent of the firm’s investments are in North America and Western Europe, including 34 percent in the US. GIC expects its investments in Asia to increase.

The firm’s annual returns for the past 20 years have averaged 7.8 percent. In contrast, Temasek Holdings, Singapore’s other sovereign fund with assets of $130 billion, has generated an 18 percent return compounded annually since its inception in 1974.

GIC was established in 1981 to manage Singapore’s foreign reserves. In March, GIC invested about €1 billion in Sintonia, an infrastructure holding company owned by Italy’s Benetton family. It has made commitments to numerous private equity funds including those managed by 3i, Advent International, Affinity Equity Partners, Baring Private Equity, CDH Investments, Ironbridge Capital, TPG Capital and Warburg Pincus.

This is the first time the Singapore sovereign wealth fund has disclosed a few details about its investment strategy and its internal structure. “With the release of this document, it is hoped that the global community will also appreciate the context and circumstances in which GIC operates, and be assured that GIC has and will always invest for only one purpose – to achieve sustainable financial returns for the government’s assets,” GIC’s deputy chairman and executive director, and former deputy prime minister of Singapore, Tony Tan said.

GIC is chaired by Lee Kuan Yew, the founding father of Singapore and the island state’s prime minister from 1959 to 1990. His son Lee Hsien Loong – the prime minister of Singapore since August 2004 – is also a deputy chairman of GIC.

Siddharth Poddar contributed to this story.