Government of Singapore Investment Corp, managing more than $100 billion, boosted cash to levels exceeding the 2008 global financial crisis as it pared stocks and bonds, reducing its holdings in Europe.
Cash allocation almost quadrupled to 11 per cent of its portfolio in the year ended March from three per cent a year earlier, GIC, as the sovereign wealth fund is known, said in its annual report. Stocks fell to 45 per cent from 49 per cent, as it pared equities in developed markets, while bonds dropped to 17 per cent from 22 per cent.
GIC is reducing its investments as the MSCI World Index posted its biggest slump since the 2008 global financial crisis and market volatility reached the highest level in more than two years. Trading options have become limited for government funds seeking to preserve capital, as policy makers across the world prepare for a deeper impact from Europe's debt woes.
“There are not many safe havens, so cash is king,” said Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co, which oversees about $1.5 billion. “It’s logical for everyone to cut investments and take a wait- and-see approach. The economic downturn will last for a while before we can see certainty and a swing-back in investment sentiment.”
GIC’s holdings in Europe fell to 26 per cent from 28 per cent, with those in the UK unchanged at nine per cent, it said. Within Europe, GIC's assets in Portugal, Ireland, Italy, Greece and Spain made up 1.4 per cent of its portfolio, mainly held in real estate and stocks in Italy and Spain, it said.
Assets in the Americas were unchanged at 42 per cent, with 33 per cent of the total portfolio in the US, it said. It raised its allocation to Asia to 29 per cent from 27 per cent.
“The market experienced many twists and turns over the last year," Lim Siong Guan, president of GIC, said in its annual report today. "There will be greater uncertainties in the future.”
Holdings in so-called alternative assets increased to 27 per cent from 26 per cent, it said, with a gain in private equity and infrastructure investments. Real estate was unchanged at 10 per cent of its portfolio, it said.
The so-called 20-year annualized real return was 3.9 per cent as of March 2012, unchanged from the previous year, it said. The annualized nominal rate of return in dollar terms was 3.4 per cent over 5 years, 7.6 per cent over 10 years and 6.8 per cent over 20 years, it said. The fund doesn't report an annual return or disclose the actual size of its portfolio.
The 5 and 10-year returns beat two composite portfolios of stocks and bonds it tracks, while it underperformed over a 20- year period, said GIC, which was set up in 1981.
The International Monetary Fund said yesterday that the euro-area debt crisis has exacerbated global financial instability and an orderly adjustment process is likely to be prolonged and costly.
In Asia, Singapore's economy unexpectedly contracted last quarter and China and South Korea cut interest rates this month. Europe was plunged into fresh market turmoil as calls for bailout aid sent borrowing costs surging, while Moody's Investors Service lowered Germany's rating outlook to negative.
The MSCI World Index dropped 7.6 per cent in 2011, the worst annual performance since 2008. The decline narrowed to 1.7 per cent for the year ended March.
"Due to the heightened uncertainty in global markets, we allowed the cash inflow from investment income and fund injection to accumulate during the year in preparation for better investment opportunities," Ng Kok Song, GIC's chief investment officer, said in the report. "We reduced the allocation to bonds because bond yields in the developed markets had been pushed down to abnormally low levels by the flight to safe assets and central bank intervention."
In the year ended March 2009, when its investments were hit by its stake in UBS AG (UBS), GIC raised its cash holdings to eight per cent from seven per cent, and reduced its bond investments to 24 per cent from 26 per cent, it said at the time.
China's sovereign wealth fund said last week it will invest with a longer-term focus after it posted a 4.3 per cent loss on its overseas holdings last year because of declines in global commodity prices.
Net income at the $482.2 billion fund, with a resources- heavy portfolio, fell to $48.4 billion in the year ended December 31, Beijing-based China Investment Corp said in its annual report on its website on July 25. The overseas investment performance was the worst since the fund was set up in 2007, and compares with an 11.7 per cent return in 2010. CIC was set up to improve returns on foreign-exchange reserves by investing overseas. In China, the fund's holdings are largely limited to stakes in financial institutions for the government.
Temasek Holdings Pte, Singapore's state-owned investment company, said it spent the most on new holdings in four years as it added more energy and resources producers to its portfolio. The company said it made S$22 billion ($18 billion) of investments in the year to March 31, boosting assets 2.6 per cent to a record S$198 billion.
The investment firm said profit for the year declined 16 per cent as contributions from units fell amid the global slowdown. Net income dropped to S$10.7 billion from S$12.7 billion a year earlier, it said in its annual report. Temasek's total shareholder return averaged 17 per cent since its inception in 1974.
Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co, held holdings of Treasuries and mortgages steady in June after saying that US securities are still the safest bet. Gross kept the proportion of US government and Treasury debt in his $263 billion Total Return Fund unchanged at 35 per cent of assets last month, according to a report on the company's website. Pimco doesn't comment directly on monthly changes in its portfolio holdings.
Gross left the Total Return Fund's net cash-and-equivalent position unchanged at negative 21 per cent last month. The fund can have a so-called negative position by using derivatives, futures or by shorting.
"Looking ahead, we assess that the investment environment will be characterized by a global economy struggling to return to sustainable growth," GIC's Ng said. "The medium-term investment outlook is therefore challenging."