GIC’s investment strategy is to build a portfolio comprising asset classes that generate good real returns over the long term, while adhering to the risk tolerance outlined by our Client.
How we build our portfolio
Our investment framework capitalises on our core strengths including our ability to take a long-term perspective, flexible capital and sound governance structure. It has three building blocks: the Reference Portfolio, Policy Portfolio and Active Portfolio.
- Maintains investments in global equities and bonds, to assure good returns over time without exposure to excessive risk.
- Aims to achieve higher returns over time by taking systematic risks.
- Accepts higher levels of risk, and aims to achieve good, skills-based “alpha” returns.
The Reference Portfolio, comprising 65% global equities and 35% global bonds, characterises our Client’s risk tolerance.
The Reference Portfolio is not a performance benchmark for GIC. Our strategy is not to track the Reference Portfolio, but to build a portfolio comprising asset classes that can generate good long-term real returns, while adhering to our Client’s risk tolerance. This approach necessarily gives rise to deviations between the GIC Portfolio and the Reference Portfolio and can result in significant differences in performance from time to time.
The Policy Portfolio is the central component of our investment framework and accounts for the bulk of the risk and return potential of the GIC Portfolio. It aims to deliver good returns over a 20-year period through diversification and careful portfolio construction that balances the way different asset classes respond to different possible economic environments. This ensures that the portfolio is resilient and does reasonably well in a range of plausible scenarios.
There are six asset classes in the Policy Portfolio: Developed Market Equities, Emerging Market Equities, Nominal Bonds and Cash, Inflation-Linked Bonds, Private Equity and Real Estate.
The Active Portfolio comprises skill-based strategies to add value to the Policy Portfolio, while broadly maintaining the same level of systematic risk. The strategies are funded by the sale of assets in the Policy Portfolio, and so must generate higher returns to compensate for the cost of capital and higher risk involved.
We focus on owning assets with good long-term earning potential, at reasonable prices. Capitalising on our core strengths, we work to find attractive bottom-up investment opportunities.
Disciplined, long-term value investing
The key to implementing our investment framework is a disciplined approach to long-term value investing. We assess the value of an asset and keep to the price discipline, even if it may mean going against market sentiments.
To do so, we consider drivers of risk and return for each asset class to establish where true fundamental value lies. This involves both top-down and bottom-up analyses.