Singapore’s GIC – the world’s sixth-largest sovereign wealth fund, with $799 billion in assets – has warned returns will be disappointing amid high inflation.
Bigger peers such as Norway’s sovereign wealth fund and Japan’s Government Pension Investment Fund have also flagged difficult market conditions, citing inflation and geopolitical events.
“Inflation itself is already a problem because we want to generate a return higher than inflation,” Lim Chow Kiat, GIC’s chief executive, said.
“Certainly we have to assume that the macro environment remains challenging for the foreseeable future,” he said, highlighting rising interest rates and its impact on economies and financial assets, and the knock-on volatility in markets.
GIC said it reported an annualised 20-year real rate of return of 4.2% for the year to March versus 4.3% over the same period a year ago. The US was its biggest market, making up 37% of its portfolio, up from 34% a year ago.
Lim said central banks are likely to further tighten policy, at least in the short term, to fight inflation.
Concerns about runaway inflation have trumped central banks’ worries about growth. The US Federal Reserve is likely to hit a key milestone on Wednesday with a rate hike that effectively ends pandemic-era support for the economy.
“The challenge is that we see inflation not just as a near-term phenomenon but actually something that will likely be part of the investment environment for the medium term,” GIC’s chief economist Prakash Kannan said.
- Reuters, with additional editing by George Russell