GIC continues to deliver on its mission to preserve and enhance the long-term international purchasing power of the reserves placed under its management. We do so by focusing on owning assets with long-term earning potential at reasonable prices and with due regard to risk. For the year ended 31 March 2017, we achieved a 20-year annualised rate of return of 3.7% above global inflation.
Last year, developments such as Brexit and the US Presidential Elections heightened apprehension that the post-war globalisation of capital and trade flows can no longer be taken for granted. Longstanding security arrangements have not been immune either. Terrorism grows unabated. Unsurprisingly, uncertainty over geopolitics and the outlook for the world economy is sharply higher.
Yet, financial markets have remained calm, and in fact continued to perform well. For one, the hope that the new US Administration will implement pro-business policies has cheered investors long frustrated with reliance on just monetary policy. At the same time, very accommodative monetary policies have helped to suppress financial market volatility, inducing more investors to take risk.
The consequent increase in asset valuations helps performance but makes investing for the future challenging. Current valuations suggest overly sanguine expectations about future earnings, even as policy uncertainty remains high.
At today’s market valuations, the universe of high-return opportunities has shrunk significantly. The 10-year US Treasury Inflation Protection Securities (TIPS), a good indicator for risk-free real yield, is currently 0.4% per annum which is markedly lower than its historical average of 1.8%. More risky assets such as equities have seen a similar reduction in yields, portending poorer returns in the future.
The combination of stretched valuations, high policy uncertainty and unresolved economic imbalances explains our relatively cautious portfolio stance. The feature article, Investing in a Highly Uncertain Environment, elaborates on this.
Even as we deal with external challenges, we continue to rejuvenate our leadership and advance our capabilities. On 1 June 2016, we installed new Chief Investment Officer positions for our core asset classes to deepen our domain expertise. On 1 January 2017, I succeeded Mr Lim Siong Guan as Chief Executive Officer, and Dr Jeffrey Jaensubhakij succeeded me as Group Chief Investment Officer.
On 1 April 2017, the position of Chief People Officer (CPO) was created. The CPO will be part of the Group Executive Committee and will shape our strategy to attract, develop and retain the best talent for a high-performing organization.
New appointments over the past year:
We are also leveraging technology more effectively to harness data, deepen insights and sharpen our competitive edge. Over time, we expect technology to play a greater role in investing, not just through specialised technology-driven efforts but by blending with traditional and more qualitative approaches.
The readiness to tackle challenges, imperative in an environment of disruptive innovation, is in no small part due to the foundations laid by our previous leaders. In this respect, I would like to express my gratitude to Mr Lim Siong Guan for a decade of distinguished service to GIC. The firm progressed immeasurabily under his leadership. He retired as Group President and has assumed the role of advisor to the Group Executive Committee.
Looking forward, we are prepared for a period of protracted uncertainty and low returns, but are also positioned to capitalise on short-term dislocations. On the organizational front, we continue to build our talent base, enhance our technological capabilities and sustain a productive working environment to ensure that GIC is primed for the future. In short, we remain guided by our investing principles to deliver sustainable long-term returns for the benefit of Singapore and Singaporeans.
We welcome Mr Mark Kritzman and Dr Mohamed El-Erian, who were appointed to our International Advisory Board on 1 April 2017.
Mr Kritzman is a Founding Partner and Chief Executive Officer of Windham Capital Management and Chairman of Windham’s investment committee. He advises GIC’s Investment Strategies and Risk Committees.
Dr El-Erian is Chief Economic Advisor at Allianz and former chair of President Obama’s Global Development Council. He is an advisor to the GIC Investment Strategies Committee.
We also welcome Mr Lam Kun Kin who joined us on 1 September 2016 on the GIC Risk Committee. Mr Lam is Senior Executive Vice President and Head of Global Treasury & Investment Banking at OCBC Bank.
It has been our privilege to benefit from the insights of the following esteemed individuals:
• Mr Raymond Lim and Mr Lim Siong Guan, who retired from the GIC Board.
• Mr Seck Wai Kwong, who stepped down from the GIC Risk Committee.
• Mr Choo Chiau Beng, who stepped down from the GIC Investment Board.