The article has been repurposed from the original interview published by the Investment Innovation Institute (i3), and is reposted here with permission from i3.
With a mandate to preserve and enhance the purchasing power of Singapore’s reserves over the long term, GIC believes that its total portfolio approach gives it an edge over more traditional strategic asset allocation (SAA) models.
“We seek to deliver long-term returns above global inflation. To that end, one of our key metrics is the rolling 20-year real rate of returns,” Dr Chiam Swee Chiang, Head of Total Portfolio Policy & Allocation at GIC, says in an interview with [i3] Insights, i3’s official educational bulletin.
GIC is one of three organisations that manage Singapore’s reserves, alongside the Monetary Authority of Singapore and Temasek. It is widely believed that GIC manages a meaningful share of the reserves, although the exact figure is not public. Over the 20-year period that ended 31 March 2022, GIC achieved an annualised real rate of return of 4.2% above global inflation.
“The fundamental challenge is to put together a portfolio that can deliver a strong real return over the long term, while adhering to the client’s [the Government’s] risk tolerance,” Chiam continues.
GIC’s solution is to use a total portfolio approach, incorporating both passive (beta) and active (alpha) return streams seamlessly.
The Thinking Ahead Institute, in its report Total Portfolio Approach (TPA): A global asset owner study into current and future asset allocation practices, states that TPA covers a spectrum of strategies, but has three aspects in common:
- It starts with very clearly specified investment goals.
- There is a joined-up process with competition for capital amongst all investment opportunities.
- It is dynamic and operates in real-time governance.
Besides GIC, the institute notes that other institutional investors that have adopted TPA include Denmark’s ATP, the Canada Pension Plan Investment Board, Future Fund, QSuper and TCorp in Australia and the New Zealand Superannuation Fund. All these investors believe TPA produces a performance advantage versus SAA on a like-for-like basis. The majority expect at least 50-100 basis points per annum to be added to the portfolio.