This article is republished from the chapter “Letter from the CEO” in the GIC Report FY2025/26. You may read the full report here.

Dear Stakeholders,

Earlier this year, the conflict in the Middle East reminded us how quickly the global environment can change. Disruptions in the Strait of Hormuz threatened a significant share of world oil supply, highlighting the risks posed by concentrated spare capacity and critical chokepoints. Within days, oil prices rose sharply, challenging the positive macroeconomic outlook that markets had anticipated at the beginning of the year: moderating inflation, stabilising interest rates, and steady growth prospects.

More broadly, the conflict exposed vulnerabilities that had built up over years across energy systems, supply chains, and the financial architecture. At GIC, we have long felt that the gravest risks are those that accumulate quietly before surfacing abruptly.

Today, across the global economy, constraints are tightening while outcomes are widening, creating a world of greater scarcity and complexity. These constraints do not exist in isolation. Geopolitical fragmentation, limited fiscal flexibility, and bottlenecks in technology and energy reinforce one another as their impacts play out unevenly across markets.

For long-term investors, this widens the range of possible outcomes, making it harder to rely on any single view of the future. Our response is to prepare, not predict. We build our portfolio around three key principles—diversification, granularity, and agility—which guide how we make our portfolio more resilient, identify opportunities early, and adapt to a more volatile environment. Through it all, our purpose endures: to preserve and enhance the value of Singapore’s reserves over the long term.

Investment performance

For the 20-year period from 1 April 2006 to 31 March 2026, the annualised US$ nominal return of the GIC Portfolio was 5.6%. This means that the portfolio earned global inflation plus 3.4% per year over this period. In other words, we added 3.4% annually to the international purchasing power of the reserves we manage over the last two decades.

Geopolitical risk: Structural not episodic

Historically, geopolitical crises followed a familiar pattern: sharp, short-term disruption, followed by a normalisation of risk premia once the crisis passed. Past episodes such as the Gulf War and 9/11 caused brief market shocks, with prices falling sharply before recovering once conditions stabilised. For investors, these swift recoveries often turned initial sell-offs into buying opportunities.

Today, geopolitical risks are no longer episodic disruptions but structural changes, with more persistent and uneven market effects. Countries are prioritising resilience and strategic autonomy, reshaping supply chains and capital flows in the process. Investments in defence, industrial policy, export controls, and other forms of economic and financial statecraft are becoming the norm.

These shifts are colliding with physical constraints in computing power, critical minerals, and energy. Efforts to secure advanced semiconductor production, rare earth supply chains, and key energy routes are increasing both the cost and complexity of building strategic capacity.

The financial burden is falling on governments already facing high debt levels. While fiscal constraints are not yet binding in most major economies, sustained spending pressures may strain those that rely heavily on foreign financing or have less policy credibility.

Together, these dynamics are changing how markets price geopolitical risk. Rather than temporary dislocations, shocks now lead to more enduring and differentiated country risk premia, higher costs of capital, and greater divergence between winners and losers.

In response, we have enhanced diversification, not only across geographies and asset classes, but across underlying sources of risk and return. This includes assets with durable cash flows, low correlation to traditional markets, and structural demand less dependent on macro conditions, such as intellectual property rights and music royalties. We have also built exposure to structural diversifiers such as gold and inflation-resilient real assets.

Artificial intelligence: Dispersion and disruption

Artificial intelligence (AI) is advancing rapidly but so are the constraints on its progress.

Demand for computing power has grown exponentially, requiring outsized investments across semiconductors and data centre infrastructure. Shorter chip development cycles and increasingly complex models reinforce this trend. Power availability, grid capacity, and skilled labour are also becoming critical bottlenecks. These are opportunities for long-term investors.

How value is distributed across the AI ecosystem remains uncertain. The large language model layer is consolidating around a few frontier players, while commoditisation risks rise elsewhere. Meanwhile, AI adoption is uneven across geographies, industries, and enterprises.

As a result, outcomes are diverging in terms of who captures value, who is disrupted, and how durable competitive advantages prove to be. Valuations continue to swing between periods of enthusiasm and cautious reassessment. We also see more uneven distribution of gains across firms, sectors, regions, and between capital and labour, as AI amplifies advantages for those with scale, data, computing power, and the ability to adapt quickly.

These dynamics inform how we invest. Rather than seeking broad exposure to AI, we assess opportunities with granularity across the value chain of enablers, monetisers, and adopters. We focus on areas with the most acute constraints, looking for firms with enduring moats, strong execution capabilities, and the ability to compound early wins into long-term advantage.

Among the enablers, we built early conviction in hyperscalers and core AI infrastructure to capture multi-year demand from training, inference, and agentic AI. We target bottlenecks in advanced semiconductor manufacturing and design, where rising complexity creates structural scarcity and sustained demand. Beyond semiconductors, we invest in the physical infrastructure that AI requires: power, grid, and cooling capacity to support data centre growth.

In the application and adoption layers, it remains too early to identify the long-term winners. Software illustrates this challenge well, with AI disruption there real but unlikely to be uniform. AI-based coding tools are reducing development costs and challenging traditional SaaS pricing models that charge per user. However, not all software businesses are structurally impaired. Companies with deep customer integration, proprietary data, and mission-critical workflows are likely to remain resilient.

Energy: Diverging paths in a constrained world

Energy has become one of the most constrained and contested parts of the global economy. Geopolitics, the AI boom, and the climate transition are converging on the same bottleneck: energy supply and infrastructure.

Electricity demand is accelerating as economies electrify and hyperscalers expand data centre capacity at unprecedented scale. At the same time, geopolitical tensions have made energy resilience and domestic supply security top national priorities.

Yet infrastructure is struggling to keep pace. Grid investments continue to lag demand growth, while permitting and interconnection delays, limited transmission capacity, and shortages of transformers and other electrical equipment are slowing the expansion of power systems.

Countries are pursuing divergent energy pathways as they balance security, affordability, and climate commitments. The result is wider variation across markets in energy costs, industrial competitiveness, and the pace of transition. Navigating this landscape requires agility—the ability to respond to each market’s energy calculus on its own terms.

At GIC, we see opportunities in businesses that strengthen resilience. These include: regulated electric networks and utilities with inflation and volume protection; grid efficiency solutions where slow build-out drives demand for technologies that ease congestion and improve energy delivery; and power equipment businesses with strong pricing power and resilient returns across varying economic conditions.

Adapting our investment framework

In 2012, GIC conducted a comprehensive review of our investment framework, culminating in the New Investment Framework (NIF). Since then, we have strengthened our active investment capabilities, particularly in private markets, built expertise in value creation, deepened strategic partnerships, and broadened our global network.

From the inception of the NIF on 1 April 2013 to its conclusion on 31 March 2026, the GIC Portfolio grew at the global inflation rate plus 4.2% per year. This annual addition of 4.2% of international purchasing power was in line with our mandate to preserve and enhance the real value of the reserves placed under our management. Over the same period, active strategies contributed 52 basis points of gross alpha per year over and above the Policy Portfolio that represented GIC’s strategic asset allocation. This demonstrates GIC’s consistent ability to add value through active management and skill-based investing.

From 2026, we will adapt our investment framework to a more complex and dynamic world. Our refreshed investment framework is anchored by a new Strategic Portfolio, that represents our Client’s risk appetite and long-term return expectations. The Strategic Portfolio comprises three broad asset groups that capture the underlying drivers of long-term returns, enabling more nimble and flexible capital allocation. The GIC Portfolio builds on this foundation, adding value to the Strategic Portfolio through bottom-up security selection and value creation. Portfolio construction will continue to be guided by the principles of diversification, granularity, and agility. More details on the refreshed investment framework are provided in the chapters ‘Investment Report’ and ‘Managing the Portfolio’.

Value creation depends as much on how we manage and exit investments as on how we buy them. We will continue to focus on the long term while treating capital recycling as a core capability, reallocating capital from maturing positions into opportunities with stronger long-term potential. This discipline ensures that capital is consistently deployed where it can earn the highest risk-adjusted returns.

Prepared for change, guided by purpose

The global investment landscape continues to shift amid tightening constraints and widening outcomes. Geopolitical fault lines are deepening, AI is redefining competitive advantage, and energy systems are straining under the competing pressures of AI-driven demand, security priorities, and the climate transition.

While these pose significant risks, they also create opportunities for those who are prepared. At GIC, we have responded with a sharpened focus on diversification, granularity, and agility, enabling us to position the portfolio for uncertainty and for opportunities arising from greater dispersion. Our global network of offices and trusted partners will play a critical role in these efforts.

As we mark 45 years of investing for Singapore, our purpose remains unchanged: to preserve and enhance Singapore’s reserves over the long term. This mandate anchors our actions and ensures that the reserves remain a source of stability and strength for generations to come.