Our investment framework enables GIC to face an increasingly challenging and complex investment environment. It capitalises on GIC’s strengths, including our governance structure and our ability to take a long-term investment perspective.
GIC’s Investment Framework

Our Starting Point

Our client, the Singapore Government, owns the funds GIC manages and sets its risk tolerance. GIC constructs the portfolio to generate good long-term returns while adhering to the risk tolerance of our client.

How We Build the Portfolio

Establishing the Client’s Risk Limits

The Reference Portfolio characterises the risk the Government is prepared for GIC to take in its long-term investment strategies. It comprises 65% global equities and 35% global bonds.

Importantly, the Reference Portfolio is not a short-term benchmark for GIC. GIC’s investment strategy is not to track the Reference Portfolio, but 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.

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.

We are confident about the long-term performance of the GIC Portfolio and do not construct it with the aim of outperforming the Reference Portfolio over short periods.

The Policy Portfolio: Key Investment Driver

The Policy Portfolio represents GIC’s asset allocation strategy over the long term. It forms the bulk of the risk and return potential of the GIC Portfolio. The Policy Portfolio aims to balance the way different asset classes respond to different possible economic environments.

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.

Through the different mix of asset classes, the Policy Portfolio is expected to achieve better returns than the Reference Portfolio over a 20-year period. This can sometimes result in short-term underperformance relative to the Reference Portfolio.

The long-term investment horizon of the Policy Portfolio means that it is not intended to be adjusted frequently or in response to market cycles. GIC has a facility to adjust its asset allocation over the medium term in response to fundamental changes in the global investment environment. An example of such a change is a structural shift in the risk and return profile of a particular asset class or geographical region.

GIC’s disciplined approach to rebalancing our long-term asset mix ensures we keep to the allocated ranges of asset classes in the Policy Portfolio.

Disciplined rebalancing

Rebalancing involves systematically buying more assets that have fallen in price and selling some assets that have risen in price, to keep the asset composition in our portfolio steady over time. When an asset class such as equities does particularly well, the rebalancing rule compels investors to sell. Conversely, when equities do particularly poorly, such as after a crash, rebalancing calls for increasing holdings of the assets that have fallen in price. Studies have shown that in the long run, a portfolio that is rebalanced regularly to its predefined target allocations tends to outperform a portfolio whose allocations are allowed to drift.

The Active Portfolio: Skill-based Strategies

The Active Portfolio includes an overlay of investment strategies in which managers add value to the Policy Portfolio, while broadly maintaining the same level of systematic risk. “Alpha” is the additional return achieved by the active strategies as compared to the Policy Portfolio.

Each active strategy must generate a return above its cost of capital and is funded through the sale of an asset class or combination of asset classes in the Policy Portfolio with a similar systematic risk exposure. For example, active strategies designed to outperform public equities are funded from public equity holdings in the Policy Portfolio. This way, passive investments in the Policy Portfolio are replaced by an active strategy with the potential for greater returns without additional systematic risk to the portfolio.

“Alpha” & Beta

The return of any portfolio can be explained by its Alpha and Beta, as commonly defined in finance literature. Beta is the portion of the return that can be attributed to market returns, while alpha is the excess return above the market.

At GIC, we separate active, skill-based “alpha” strategies from beta activities to enable a greater understanding and consequently management of the drivers of our portfolio return and risk. Our focus for beta activities is to achieve cost and operational efficiencies. For alpha, our focus is to earn return from our institutional advantages, skills and efforts.

The GIC Board establishes an overall risk budget which GIC Management can use for its active strategies. These strategies are stress-tested to understand and quantify their performance under various extreme but plausible market conditions, including macroeconomic and geopolitical events.

Active Risk Budget

The active risk budget sets the total level of risk for the Active Portfolio. GIC Management employs risk budgeting to allocate risk to different strategies.


Governance of the Investment Framework

The investment framework clearly defines the different risk and return drivers for GIC in the long run, and further clarifies the responsibilities of the GIC Board and Management. The Reference Portfolio is consistent with the Singapore Government’s risk appetite, while the GIC Board approves the Policy Portfolio which is expected to deliver good sustainable returns over the long term. GIC Management is given the discretion to add value within the risk limits set by the GIC Board through the Active Portfolio which comprises active, skill-based strategies.

The Investment Board (IB) provides additional and independent oversight on GIC’s active investment management and process. It comprises individuals drawn from the private sector, some of whom are not members of the GIC Board. They collectively bring a wealth of experience in different types of investments in a range of geographies. A critical role of the IB is to ensure that GIC invests in a sound and disciplined manner. Additionally, the IB ensures that GIC does not take on undue reputational risk in our pursuit of good investment opportunities. GIC inevitably has significant positions in various companies. Special attention will be paid to such large investments.

The following table summarises the responsibilities within GIC under the investment framework. Taken as a whole, our investment framework capitalises on GIC’s strengths. These include the ability to take a long-term investment perspective; capabilities in public and private markets and the potential to synergise these to invest in cross-asset opportunities; presence in all major geographies; a skilled and experienced talent pool; and a governance structure that clearly distinguishes the responsibilities of the GIC Board and Management.

Responsibilities within GIC under the investment framework
GIC Board
  • Approves Policy Portfolio and active risk budget
Investment Strategies Committee
  • Reviews GIC Management’s recommendations on the Policy Portfolio and active risk budget
Investment Board
  • Oversees GIC Management’s active strategies and large investments
  • Ensures GIC does not take on undue reputational risk in pursuit of good returns
GIC Management
  • Recommends the Policy Portfolio and constructs the Active Portfolio
  • Has discretion to add value through the Active Portfolio within the risk tolerance in GIC’s mandate set by the Client
Investment Teams
  • Implement Policy Portfolio and conduct active strategies

Investment Philosophy

At the heart of GIC’s investment philosophy is a disciplined approach to long-term value investing. We seek opportunities where there is a clear difference between the current price and the intrinsic value of an asset.

Long-Term Value Investing

GIC’s long-term value investing approach is underpinned by our ability to distinguish price from value. An asset’s price is driven mostly by cyclical market sentiments, while its value is its fundamental worth. Anchored by this perspective, we endeavor to assess the value well and keep to the price discipline, even if it sometimes means going against the market sentiments.

We consider the drivers of risk and return for each asset class to establish where true fundamental value lies. This approach comprises both top-down and bottom-up analyses for all investments. In top-down analysis, we review the country’s macroeconomics, politics, currency and corporate governance culture; sector fundamentals such as industry structure, drivers and trends. This top-down approach is similar for public and private markets’ asset classes, while bottom-up analyses are more varied.

For example, in public equities, the bottom-up analysis focuses on the stock’s fundamentals, such as business model, competitive strengths, balance sheet, profitability and management, while valuation is based on factors such as pricing ratios, yields and cash flows. In real estate, the teams conduct bottom-up analysis based on property-specific factors such as location, building quality, tenant mix, lease expiry profiles and income stream outlook. Our long-term value investing mindset is the common thread.

Long-term investing is not a rigid buy-and-hold approach over long periods. The holding period is driven by the movements in the price and value of an asset. It is not necessarily a function of time, although it usually takes some time for price to reflect value. Translating this philosophy into practice requires constant and concerted effort.

Factors such as track records, strength of management teams and sustainable business theses are included in our risk analyses. We are also an active advocate of long-term investing, as seen in our participation in initiatives such as the “Focusing Capital on the Long Term” initiative and other efforts.


Case study

Focusing Capital on the Long Term (FCLT)

GIC is an advisory board member of the FCLT initiative, which comprises a diverse group of more than 20 global leaders who represent major institutional investors and corporations. FCLT was established in 2013 to develop practical structures, approaches, and ideas to advocate a longer term mindset amongst businesses and investors. GIC is a key contributor to various FCLT initiatives including Perspectives on the Long Term where we presented GIC’s view on ways to change the current system to reinforce long-term practices. Our contributions to FCLT’s Long-Term Portfolio Guide to encourage institutional investors to invest for the long term was awarded Best Investment Paper 2015 at The Savvy Investor Awards. The Awards recognise the best pensions and investment white papers of 2015. GIC was advocating, through FCLT, for more to be done to incorporate a longer-term orientation in the design and utilisation of benchmarks. The creation of long-term benchmarks, like the S&P Long-Term Value Creation Global Index launched in January 2016, was a key recommendation by FCLT to encourage fund managers to allocate capital to companies focused on creating long-term value.



Our core investment groups underpin the investment organization at GIC: Public Equity, Fixed Income, Private Equity & Infrastructure, and Real Estate. In addition, our Integrated Strategies Group evaluates and invests in cross-asset investment opportunities. We separate active skill-based “alpha” strategies from beta activities at GIC to enable greater effectiveness and efficiency. Our focus for beta activities is to achieve cost and operational efficiencies. For alpha, our focus includes enhancing collaboration to tap GIC-wide expertise to access investment opportunities and execute major investments which are not straightforward in their construction.

We are open to investing in all countries outside of Singapore, but do not invest in countries that are subject to United Nations Security Council sanctions. We exercise ownership rights in our investments to protect the financial interest of our client.

Investment Groups in Public and Private Markets

GIC invests in both public and private markets. In public markets, we invest in public equity in both developed and emerging markets, absolute return strategies (hedge funds), fixed income, cash and currencies. We manage a well-diversified portfolio to produce sustained, superior risk-adjusted performance. In private markets, our allocation to alternative asset classes stems from their potential to generate high long-term real returns and their role to diversify the portfolio. Real estate assets, in particular, also serve as a hedge against inflation. GIC’s long investment horizon puts us in a good position to exploit market inefficiencies through the active management of these assets.

Public Equity Group

GIC pursues active management strategies in equity investing. We have an established team of in-house research analysts and experienced portfolio managers. They conduct in-depth due diligence and research that enable us to identify undervalued stocks with the potential to generate good returns over the long term. Our investment professionals have a wide network of corporate and industry contacts with diverse insights on companies in the investment universe.

Fixed Income Group

Fixed income investments aim to generate steady returns, provide a liquidity reserve to support portfolio management activities, and enhance capital preservation through diversification. Our portfolio managers employ a range of investment strategies in managing fixed income investments including yield curve analysis, credit, interest rate duration and currency management to add value to the portfolio.

Private Equity & Infrastructure Group

GIC’s private equity universe includes buyouts, venture capital and special situations such as mezzanine debt, distressed debt and secondary fund investments. We invest in companies directly and through funds. The direct investment programme is focused on taking minority equity positions and providing mezzanine financing in buyouts. Our funds strategy aims to identify and invest with leading private equity and venture capital funds globally, and grow with them in the long run. We have built up a network of over 100 active fund managers. The investment teams add value to the boards and management of the investee companies by providing advice and access to a global network of business links.

In Infrastructure, GIC’s primary strategy is to invest directly in operating infrastructure assets with a high degree of cash flow visibility and which provide a hedge against inflation. These include mature, low- to moderate-risk assets in developed markets, complemented by investments with higher growth potential in emerging markets.

Real Estate Group

GIC is an early entrant among institutional investors in real estate. Investments include traditional private real estate (brick-and-mortar assets), public equities (such as real estate operating companies), real estate investment trusts and real estate-related debt instruments. The real estate assets span multiple property sectors, including office, retail, residential, industrial and hospitality.

Real estate investing is pursued through a rigorous investment analysis, underwriting and approval process to ensure the portfolio meets both investment and risk objectives. Asset-specific conditions and risk are among the factors that influence investment decisions. GIC actively manages the assets to generate income and enhance market value through tenant management, market positioning, leasing and capital improvements. In this team-based approach, an appropriate range of real estate and capital market skills is applied to each investment.

Integrated Strategies Group

The Integrated Strategies Group (ISG) aims to enhance our alpha-generating capability and capacity by approaching cross-asset investment opportunities from a GIC-wide perspective. Through supplementing efforts by the business groups and leveraging GIC’s competitive advantages, ISG oversees a more flexible and collaborative investment approach across product types, public and private markets, as well as capital structure. The key functions of ISG include the evaluation and development of thematic investment strategies and complementary product ideas; supplementing GIC’s efforts in sourcing and executing investments across asset classes; as well as building and strengthening our relationships with external parties, including the senior management of major corporations and business groups.

Portfolio Execution Group

The Portfolio Execution Group (PEG) was established recently under our revised investment organization structure to enable more efficient beta replication on passive portfolio management. PEG comprises functions such as trade execution, treasury and currency management, asset rebalancing, passive replication and trade completion.


External Managers

GIC partners top-tier fund management institutions that offer access to opportunities, specialised capabilities, in-depth analysis and experience which complement our internal management capability.

We invest in a variety of funds including real estate funds, private equity funds, bond funds, index funds and hedge funds. In addition to the portfolios managed within GIC, we give external fund managers discretionary mandates in a wide range of asset classes such as global fixed income and global equities, while remaining fully accountable for overall performance of the portfolio.

We regularly assess our external managers relative to expected returns, risks and guidelines.


Managing Risks

Identifying and managing risk is a core responsibility of all GIC staff. Each employee has individual accountability and clearly defined responsibilities within a risk management framework where checks and balances are in place. This ensures risks taken are appropriate and in-line with the risk tolerance set by the client. Underpinning the framework is a risk-conscious culture built on an ownership mindset and discipline in risk taking.

While we cannot eliminate all risk from the investments we make, we can increase the odds of favourable outcomes through sustainable processes that are managed by staff who act in accordance with GIC’s PRIME values.

Risk Management Objectives

GIC’s risk management objectives are to ensure:

  1. The investment strategies are consistent with the risk tolerance set by our client, the Singapore Government
  2. Policies, guidelines and control processes are in place to reduce the likelihood of significant losses
  3. Any reputational impact due to our actions is carefully managed
  4. The risks associated with each investment are well-understood and that we are adequately compensated for taking those risks

Risk Governance

The GIC Board provides ultimate risk oversight. It is responsible for determining the risk principles, as well as the risk appetite in conjunction with the investment objectives. The GIC Board is supported by the Board Risk Committee, which advises the Board on risk matters, provides broad supervision on the effectiveness of risk management policies and practices and reviews significant risk issues arising from GIC’s operations and investments.

The Group Executive Committee is the highest management body in GIC. It deliberates on investment and risk issues before they are submitted to relevant board committees. It is also the forum that assesses and makes determinations regarding fiduciary risk and reputational risk issues.

The Chief Risk Officer (CRO) is a member of the Group Executive Committee and reports to the Group President and Chairman of the Board Risk Committee. The CRO is accountable to the Board of Directors, primarily through the Board Risk Committee, on all risk-related matters.

The CRO chairs the Group Risk Committee that is vested with the responsibility to approve risk management policies, oversee the implementation of these policies, review significant risk issues from investments and operations and ensure the resolution of these issues.

Three Lines of Defence
GIC’s risk management model operates along “three lines of defence” which ensure there is clarity and transparency in risk ownership and accountability.

Risk Governance Model

The First Line: Operating Units

People are the cornerstone of any risk management system. All GIC staff are expected to act with integrity, exercise sound judgment, and understand, evaluate and carefully manage the risks they take.

All operating units own and are primarily accountable for the risk inherent in their activities. This includes risk arising from activities managed by appointed agents. All operating units are also responsible for ensuring that an appropriate risk and control environment and robust processes are established as part of their day-to-day operations.

The Second Line: Independent Risk Functions

Risk management and control functions independent of the risk-taking business units are the second line of defence. They provide “checks and balances” through appropriate day-to-day risk oversight and control.

Our control functions include the Risk and Performance Management Department (RPMD), Legal and Compliance Department (LCD) and Finance Department (FD). They each have their defined set of responsibilities respectively, but work collectively to provide the requisite “checks and balances” to the risk-taking activities of GIC’s investment groups.

RPMD is an independent control function which reports to the Director, RPMD, who in turn reports to the Chief Risk Officer (CRO). RPMD is responsible for the independent assessment, measurement, monitoring and reporting of GIC’s investment, counterparty credit and operational risk profile.

LCD reports to the General Counsel (GC) who reports directly to the Group President. LCD is responsible for the independent assessment, handling, monitoring, reporting and escalation of significant legal, regulatory and compliance matters to the Group and Board Risk Committees. LCD is also responsible for managing litigation, regulatory inquiries and maintaining and enhancing our relationships with the regulators.

FD reports to the Director, FD, and is responsible for financial management across the GIC group, providing budgeting, accounting, payment processing, cash management, tax as well as financial and management reporting services.

The Third Line: Internal Audit

Our Internal Audit Department provides the third line of defence, conducting periodic reviews of the appropriateness and effectiveness of our internal risk management controls.

Risk Management Approach

Our approach to risk management is multi-pronged:

  1. Managing portfolio investment risk to ensure that risk taken is consistent with our mandate and commensurate with the expected returns;
  2. Managing legal and regulatory compliance risk to ensure that GIC and our clients’ interests are protected and that we comply with applicable laws and regulations;
  3. Managing counterparty credit risk to minimise the impact to GIC if any counterparties were to default;
  4. Managing reputational risk;
  5. Managing process and infrastructure risk so that investment decisions are implemented properly; and
  6. Managing people risk.
Managing Portfolio Investment Risk

The Policy and Active Portfolios are constructed with our client, the Singapore Government’s, long-term real return objective and risk tolerance in mind. Deviation of asset allocation exposure from policy benchmarks is constrained by allocated ranges around the Policy Portfolio’s target weights. These ranges are termed as operating bands, and are approved by the GIC Board. The GIC Board also sets an active risk budget to manage the risk arising from the deviation of the Active Portfolio from the Policy Portfolio. A cost of capital framework is implemented to set an appropriate performance hurdle for each active strategy that includes the cost of funding these strategies and a premium for additional risk undertaken.

Policies, guidelines and processes are established to ensure consistency and clarity across the firm while reducing the likelihood of significant unexpected losses to the assets under management. The policies and guidelines translate our investment mandate and the risk management principles into expectations and standards that guide our day-to-day activities. We have processes to identify, measure, report, monitor and mitigate all the risks that are assumed, compensated or uncompensated.

In addition to monitoring the operating bands and active risk budget, RPMD conducts regular monitoring of the active strategies to ensure adherence to the investment thesis and consistency with funding assumptions. RPMD also has regular dialogues with active strategy teams to discuss risk and performance-related issues.

The active risk budget is supplemented by a set of investment guidelines and risk measurements to ensure the essence of the Policy Portfolio is preserved. We monitor for concentration risk as well as other risks that are not fully reflected in our standard risk measures. A variety of risk measures across different time horizons are used to quantify the risks within the GIC Portfolio. These include a mix of statistical and non-statistical measures as well as relative and absolute measures.

Stress tests are conducted across a combination of both historical and forward-looking scenarios. These help GIC identify and manage potential vulnerabilities by determining how extreme yet plausible macroeconomic and geopolitical events may impact the portfolio.

RPMD sets and monitors performance and risk review thresholds independently to highlight instances of unusually large portfolio underperformance. RPMD also highlights potential changes in risk-taking behaviour and inconsistencies with the stated risk and return assumptions. Information systems are used to monitor and evaluate risk criteria, trading limits and investment guidelines within each managed portfolio. Portfolio managers and senior management obtain timely feedback on the risk profiles of our investments through performance and risk attribution tools.

A group-wide investment authorisation framework sets out the approving authorities for investments based on size, and subjects large investments to additional review by the Investment Board. Investment teams in private market asset classes conduct extensive due diligence covering the market, physical, legal and financial aspects of the transactions, as well as the selection of investment partners, holding structures, and exit strategies. The Tax Risk Management Framework underscores our commitment to be compliant with tax laws, rules, regulations and obligations set by the respective governments of the jurisdictions in which we invest and operate. Measurement and operational risks associated with the performance of private market assets are managed via operational and financial controls.

Managing Legal and Regulatory Compliance Risk

Legal and regulatory risk relates to uncertainties in the interpretation and application of laws and regulations, the enforcement of rights or the management of potential litigation, breaches in contracts, laws or regulations.

We require all staff to observe GIC’s compliance manual (incorporating the code of ethics), to comply with all applicable laws and regulations, and to uphold exemplary conduct. The Legal and Compliance Department (LCD) conducts training regularly for all staff so they are updated on legal, compliance and regulatory requirements. Such training raises the awareness of operational risk and strengthens GIC’s robust and ethical compliance culture. LCD also ensures all staff adhere to their confidentiality obligations and responsibilities. These are with respect to conflict of interests, anti-bribery and corruption, gifts and entertainment, external activities, personal investments, as well as whistle-blowing. It is mandatory for every GIC employee to achieve a passing score for the annual compliance quiz.

The investment and operations teams work closely with LCD to manage legal and regulatory compliance risk arising from the group’s investment activities. LCD monitors compliance with laws and regulations, including securities laws (e.g. insider trading, unlawful market conduct, exchange position/foreign investment limits and other reporting requirements) and competition law requirements, licensing and regulatory approvals, anti-bribery and corruption laws, and GIC’s information barrier policy. Emerging legal and regulatory issues and proposed regulatory changes are also closely monitored.

Additionally, the in-house legal team works with external lawyers to address legal risks.

Managing Counterparty Credit Risk

GIC adopts a strong control orientation in managing counterparty credit risk, trading only with financially sound and reputable counterparties. A stringent selection and approval process is in place to appoint counterparties. We review the counterparties and monitor our counterparty exposure against set limits and report counterparty profiles to senior management regularly. Other measures to mitigate credit risk include using netting agreements and programmes requiring counterparties to pledge collateral.

Managing Reputational Risk

Managing reputational risk is part of GIC’s overall risk management framework. Our governance and investment processes ensure we do not take on undue reputational risk in our pursuit of returns.

This encompasses taking a broad view of our investments to include environmental, social and governance risks, which we factor into our investment due diligence and analysis.

Managing Process and Infrastructure Risk

All investment and operations staff are required to identify, evaluate, manage and report risks in their own areas of responsibility, and to comply with established risk policies, guidelines, limits and procedures.

New investment products or strategies are subject to a risk identification and assessment process conducted by a cross-functional group. This ensures risks associated with the new product or activity are identified and analysed before any new investment. We must be satisfied that the required people and infrastructure, including systems, procedures and controls, are in place to manage these risks.

We assess the control environment to ensure control weakness is promptly identified and addressed. We monitor continuously key risk indicators including late transaction processing, late report releases, stale prices and system downtime. These indicators highlight potential risk areas that need to be addressed in a timely manner to mitigate the risk of loss resulting from possible slippages in GIC’s operations.

Infrastructure, including technology and data, plays a critical role to enable effective investment and risk management. Policies and procedures are established to safeguard the physical security and integrity of GIC’s technology and data assets.

Our business continuity plan is tested and reviewed regularly to ensure that our procedures and infrastructure can support operations in the event of a business disruption. This enhances corporate resilience and safeguards the group’s operations.

Throughout the year, internal and external auditors scrutinise all operations and business processes. Any deficiencies identified must be addressed within set time frames and reported to senior management.

Managing People Risk

We require our staff to observe GIC’s code of ethics, maintain exemplary conduct and comply with applicable laws and regulations, including prohibitions against insider trading and other unlawful market conduct.

Staff must handle confidential and non-public information with due care. These guidelines are set out in our compliance manual.

Consistent with our long-term orientation, GIC’s remuneration policies and practices support and reinforce a prudent risk-taking culture, as well as recognise and reward our people on the basis of long-term, sustainable results.

People are at the heart of our business. Our PRIME values are the compass in the management of our people, processes and portfolio. Assessment of these values is included in our staff appraisals.