GIC’s investment strategy is to build a portfolio comprising asset classes that generate good long-term real returns, while adhering to the Client’s (the Singapore Government) risk parameters.
Our mission is to preserve and enhance the international purchasing power of the reserves placed under our management by delivering good long-term returns above global inflation.
To this end, we established an investment framework that equips GIC for an increasingly challenging and complex investment environment. Adopted in 2013, the framework leverages GIC’s strengths, including our ability to invest for the long term, flexible capital and governance structure.
The Client owns the funds that GIC manages, and decides on the overall risk that the GIC Portfolio can take in pursuit of good long-term returns.
The investment process begins with the Policy Portfolio, which defines the key asset classes that drive the GIC Portfolio’s long-term returns. The Active Portfolio aims to add “alpha” to the Policy Portfolio through skill-based, active strategies while preserving the exposure to the systematic market risks. The Policy Portfolio and Active Portfolio together form the GIC Portfolio.
The Policy Portfolio represents GIC’s asset allocation strategy over the long term. It accounts for the bulk of the risk and return potential of the GIC Portfolio. The Policy Portfolio seeks to balance the way different asset classes respond to varied possible economic environments.
The Policy Portfolio comprises six asset classes: Developed Market Equities, Emerging Market Equities, Nominal Bonds and Cash, Inflation-linked Bonds, Private Equity and Real Estate.
Through the diversity of asset classes, the Policy Portfolio is expected to generate good risk-adjusted returns over a 20-year period.
The Policy Portfolio has a long-term investment horizon and is not intended to be adjusted frequently or in response to market cycles. GIC’s approach to rebalancing our portfolio ensures we keep to the allocated ranges of asset classes in the Policy Portfolio. Rebalancing involves systematically buying assets that have decreased in price and selling assets that have increased 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 very poorly, such as after the bursting of an economic bubble, rebalancing calls for acquiring assets that have decreased in price. Nevertheless, GIC does occasionally adjust its asset allocation over the medium term when there are fundamental changes in the global investment environment, such as structural shifts in the risk and return profile of a particular asset class or geographical region.
The Active Portfolio comprises a group 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 active strategies as compared to the Policy Portfolio, while beta comprises market returns. At GIC, active alpha strategies are separated from beta activities to better manage our return and risk drivers. Our beta activities seek to achieve a diversified mix of asset classes through careful portfolio construction which considers the response of various asset classes to different possible economic environments. Our alpha activities aim to earn returns from GIC’s skills and competitive advantages.
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 overall risk profile. 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.
The GIC Board sets an active risk budget which GIC Management can use for its alpha strategies. These strategies are stress-tested to understand and quantify their performance under various extreme but plausible market conditions, including macroeconomic and geopolitical events. The active risk budget establishes the total level of risk for the Active Portfolio. GIC Management employs risk budgeting to allocate risk to different strategies.
Through the Policy Portfolio and Active Portfolio, the GIC Portfolio is diversified across asset classes, with each carrying a different risk and return profile. Growth assets such as equities generate higher returns, but are riskier. Defensive assets such as sovereign bonds offer lower returns, but embody lower risk and protect the portfolio in market downturns.
The GIC Portfolio is constructed to be resilient across a broad range of possible market and economic conditions, while generating good returns above global inflation in the long term.
Principles of Portfolio Construction
In GIC, portfolios are constructed to give them the best chances of achieving their intended purposes over appropriate horizons and within appropriate risk limits. For the GIC Portfolio as a whole, this means achieving good long-term returns over 20 years while limiting potential downside over the shorter term.
In GIC, portfolio construction is founded on the following principles:
All these principles are the basis upon which we allocate capital in GIC’s Policy Portfolio which represents our strategic asset allocation, and in our Active Portfolio and its actively-managed strategies.
The Client owns the funds that GIC manages, and decides on the overall risk preference, which is characterised by a Portfolio made up of 65% global equities and 35% global bonds (“65:35”). The Reference Portfolio is not a benchmark, but an expression of the overall risk that the Client is prepared for the GIC Portfolio. The 65:35 Portfolio reflects a reasonable trade-off of risk and return. Historically, it has delivered good compounded long-term returns despite periodic drawdowns.
GIC’s investment strategy is to build a portfolio comprising asset classes that can generate good long-term returns above global inflation, while adhering to our Client’s risk parameters. On occasion, there may be a difference between the risk exposure of GIC and the Reference Portfolio. GIC may adjust its risk exposure, in times of market exuberance or when the opportunity arises. This is part of a disciplined, professional approach to long-term value investing.
The investment framework encapsulates the various long-term risk and return drivers for GIC. It also reflects the responsibilities of the GIC Board and Management. The Reference Portfolio characterises the Client’s risk appetite, while the GIC Board approves the Policy Portfolio which is designed to deliver good, long-term returns. GIC Management is empowered to add value within the risk limits stipulated by the GIC Board through the Active Portfolio which comprises active, skill-based strategies.
The Investment Board (IB) provides an independent layer of oversight on GIC’s active investment management and process. IB members come from the private sector and may not necessarily be GIC Board Directors. Together, they offer extensive experiences in various types of investments across geographies. The IB ensures that GIC invests in a sound and disciplined manner. Additionally, the IB ensures that GIC takes into account potential reputational risks arising from investment activities.
In its totality, our investment framework leverages GIC’s strengths. These include our long-term investment horizon; capabilities in both public and private markets and to use these capabilities to develop cross-asset investment opportunities; presence in major financial cities; and a governance structure that clearly lays out the responsibilities of the GIC Board and Management.
The following table summarises the responsibilities within GIC under the investment framework.
|Investment Strategies Committee||
As a disciplined long-term value investor, we take a systematic, patient and diversified approach in seeking investment opportunities, where there is a clear difference between the current price and intrinsic value of an asset.
GIC’s investing approach is underpinned by our discipline to distinguish price from value. An asset’s price is driven largely by market sentiments, while its value is its fundamental worth. Anchored by this perspective, we seek to appraise value appropriately and adhere to price discipline, even when it sometimes means going against prevailing market sentiments.
To determine where true fundamental value lies, we identify and assess drivers of long-term value as a core part of our investment process. This approach comprises top-down and bottom-up analyses for all investments. In the top-down analysis, we review a country’s macroeconomics, politics, currency and corporate governance culture, as well as sector fundamentals such as industry structure, drivers and trends. This top-down approach is similar for asset classes in public and private markets.
Our bottom-up analysis is more varied and depends on the assets we invest in. For example, in public equities, we focus on the stock’s fundamentals, such as the company’s business model and its competitive strengths, balance sheet, profitability and management. In real estate, our 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 value investing mindset is the common underlying principle.
To deliver good long-term returns, we consider all opportunities and risks that could drive investment value in the long run. These considerations, which include track record, ability and integrity of management teams and business practices, are integral to our investment process. We expect our investee companies to comply with applicable laws and regulations and apply appropriate corporate governance and stakeholder engagement practices.
We also actively advocate long-term thinking in the wider community, as exemplified by our participation in initiatives such as Focusing Capital on the Long Term Global and the International Forum of Sovereign Wealth Funds.
It is our belief that companies with good sustainability practices are likely to generate strong investment returns over the long term, on a risk-adjusted basis. Our approach hence integrates sustainability considerations into our investment and corporate processes.
Taking a long-term perspective
GIC invests to preserve and enhance the long-term value of our total portfolio. Sustainable long-term investing requires holistic assessment of risks and returns. Corporate practices in the areas of environment, social and governance (ESG) have generally impacted long-term value, and are therefore an important consideration in our investment decision process.
Establishing a robust sustainability process
GIC’s assessment of a company’s value includes an evaluation of the sustainability practices of the company and their potential impact on its value. We embed such considerations into the investment process, by including sustainability factors in investment analysis, due diligence and risk assessment. Additional due diligence is conducted on companies with greater exposure to sustainability issues.
We are guided by sound stewardship principles to promote sound corporate governance and sustainable business practices. We engage with portfolio companies on sustainability and exercise our voting rights in a responsible manner. Our voting choices are informed by a set of global principles and policies, while being sensitive to local differences. Our votes reflect our long-term view and sustainability beliefs.
At GIC, our investment teams work to find attractive bottom-up investment opportunities.
Our core investment groups are Public Equities, Fixed Income, Private Equity, Real Estate and Infrastructure. In addition, our Integrated Strategies Group evaluates and invests in cross-asset investment opportunities. Our External Fund Managers supplement the expertise of our core investment groups, while the Portfolio Execution Group and Investment Services further support the implementation of the investment decisions made.
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 monitor our investee companies and exercise ownership rights, with the intent to preserve and enhance long-term investment value and protect the financial interests of our Client.
|Constructs long-term portfolio policy, undertakes medium-term asset allocation, as well as innovates alternative investment models|
|Public Markets||Private Markets|
Portfolio Execution Group
External Fund Managers
External Fund Managers
|Invests across developed and emerging markets in equities and fixed income, constructing a diversified portfolio to produce sustainable, risk-adjusted performance||Invests in opportunities with the potential to generate high long-term real returns and the ability to diversify our portfolio|
|Integrated Strategies Group|
|Focuses on cross asset and less conventional investment opportunities, develops thematic investment strategies and actively expands our network of relationships beyond traditional domains|
|Supports public and private market investment activities|
GIC invests in both public and private markets. In public markets, we invest in public equities in both developed and emerging markets, absolute return strategies (hedge funds), fixed income and cash. We manage a diversified portfolio to produce good risk-adjusted performance. In private markets, we invest in opportunities that have the potential to generate high long-term real returns and the ability to diversify the portfolio. Real estate assets, in particular, also serve as a hedge against inflation.
Our equity investing effort is carried out by a team of in-house research analysts and portfolio managers, organised along product groups specialising in total return, relative return and quantitative strategies. The team conducts in-depth due diligence and research to identify businesses with the potential to generate good long-term returns.
GIC Fixed Income is broadly organised along three areas: Global Macro, Global Credit and Cross-asset Systematic investing. We invest across the entire fixed income spectrum which includes government bonds, emerging market bonds, corporate bonds and loans, convertible bonds, hybrid securities, securitized products, structured credit and global currencies. Our multi-asset macro and systematic strategies also invest in asset classes such as equities and commodities.
GIC’s private equity (PE) universe includes buyouts, minority growth, pre-IPOs, venture capital, private credit and special situations such as distressed debt, and secondary PE. We invest in companies directly and through funds. The direct investment programme is focused on taking minority equity positions and providing junior and senior debt financing in buyouts. Our funds strategy aims to identify, and invest with, leading private equity, venture capital, private credit and special situations 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.
GIC was an early entrant among institutional investors in real estate. Our investments in the space now include traditional private real estate (brick-and-mortar assets), public equities, real estate investment trusts and real estate-related debt instruments. Our real estate assets span multiple property sectors, including office, retail, residential, industrial and hospitality. Through active asset management, GIC can further generate income and enhance the market value of its assets through tenant management, market positioning, leasing and capital improvements.
Through active asset management, GIC can further generate income and enhance the market value of its assets through tenant management, market positioning, leasing and capital improvements.
GIC Infrastructure Group takes a multi-pronged approach to investing. We invest directly in private equity that operate 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. The group also invests in infrastructure funds, non-investment grade infrastructure debt and structured investments in listed infrastructure companies.
Integrated Strategies Group (ISG) focuses on cross-asset and less conventional investment opportunities across products and geographies. ISG collaborates with the other groups to jointly invest in large investment opportunities. ISG also invests independently in any of GIC’s asset classes, where appropriate. It develops thematic investment strategies and expands our network of relationships beyond traditional domains.
GIC engages external fund managers to access investment capabilities and opportunities, in various sectors and geographies. External managers enable GIC to gain exposure across public and private markets. They also provide us with valuable investment insights.
The Portfolio Execution Group is responsible for implementing liquid market decisions, and is made up of two arms – the Global Trading Unit (GTU) and the Treasury and Portfolio Management Group (TPMG). GTU executes investment decisions across all public market asset classes and provides market intelligence. GTU is organised into four teams – Equities, Fixed Income and Currencies, Liquid Strategies and Execution Research – and operates around the clock across three centres – Singapore, London and New York. TPMG is responsible for total portfolio rebalancing, liquidity management, strategy funding, as well as equity beta replication and financing. Our portfolio managers seek efficiency while minimising transaction costs.
GIC has a dedicated investment services team that supports public and private market investment activities. This includes support for deal closing, investment and data operations, investment reporting, management reporting, portfolio accounting, valuation and financing.
Investing involves prudent risk-taking. Identifying and managing risk is therefore a core responsibility of all GIC staff. Each employee has individual accountability and clearly defined responsibilities within our risk management framework. This ensures risks taken are in line with the risk tolerance set by the Client.
Risk Management Objectives
GIC’s risk management objectives are to ensure that:
The GIC Board provides ultimate risk oversight. The Board approves the Policy Portfolio which is constructed with our Client’s long-term real return objective and risk tolerance in mind. Deviation of asset allocation exposure from policy benchmarks is constrained by a set of operating bands around the Policy Portfolio’s target weights. In addition, the GIC Board sets an active risk budget to limit the risk arising from the deviation of the Active Portfolio from the Policy Portfolio. The GIC Board is supported by the Board Risk Committee, which advises the Board on risk matters. The Board Risk Committee sets the overall direction of risk management policies and practices in GIC. In addition, it 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 on fiduciary risk and reputational risk issues.
The Chief Risk Officer (CRO) is a member of the Group Executive Committee and reports to the Chief Executive Officer (CEO) 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 responsibility to oversee implementation of risk policies, review significant risk issues from investments and operations, as well as to ensure the resolution of these issues.
GIC’s risk management model operates along “three lines of defence” which ensure that there is clarity and transparency in risk ownership and accountability.
People are the cornerstone of any risk management system. All GIC staff are expected to act with integrity and exercise sound judgement; they need to understand, evaluate and carefully manage the risks that they take.
All operating units own, and are primarily accountable for, the risks inherent in their activities. They are responsible for ensuring that an appropriate risk-and-control environment and robust processes are in place as part of their day-to-day operations. Our risk assessments are forward-looking and form an important element of our long-term approach. We consider a broad spectrum of risks with potential long-term impact, including sustainability risks and risks from activities managed by appointed agents.
Risk management and control functions independent of the risk-taking business units are the second line of defence. They provide appropriate day-to-day risk oversight and control. These functions include risk management, legal and compliance, information and technology risk management, as well as tax and finance. While they each have their defined set of responsibilities, they also work collectively to provide the requisite checks and balances to the risk-taking activities of GIC’s investment groups.
Our Internal Audit Department (IAD) forms the third line of defence. It provides an independent assessment and assurance on the adequacy and effectiveness of our internal risk management controls. It reports functionally to the Chairperson of the Audit Committee, and administratively to the CEO.
Our approach to risk management is multi-pronged:
Managing portfolio investment risk to ensure that risk taken is consistent with our mandate and commensurate with expected returns;
Managing legal, regulatory and compliance risks to safeguard the reputation and interests of GIC and our Client, and to comply with applicable laws and regulations;
Managing tax risk to ensure compliance with the tax laws of applicable jurisdictions;
Managing operational risk through an effective system of internal controls and processes to support GIC operations;
Managing cyber security, technology and information risk to ensure that our technology resources and information are well-protected;
Managing counterparty credit risk to minimise the impact to GIC if any counterparties were to default;
Managing reputational risk; and
Managing people risk.
The multi-pronged approach to risk management, complemented by the three lines of defence, ensures that risks within the portfolio are looked at in a comprehensive manner. While risks remain, they are well identified and managed within established risk tolerance.
|GIC’s mandate is to generate good long-term risk-adjusted returns.|
|GIC’s Risk Management Objectives|
|1. The investment strategies pursued are consistent with the risk tolerance set by the Client, and within defined bounds authorised by the Client, Board and Management.|
|2. The risks associated with each investment are well-understood.|
|3. Policies, guidelines and control processes are in place to reduce the likelihood of significant losses.|
|4. Any reputational impact due to our actions is carefully managed.|
|Investment Risk||Tax Risk||Cyber Security, Technology and Information Risk||Reputational Risk|
|Legal, Regulatory and
|Operational Risk||Counterparty Credit Risk||People Risk|
|Legal, Regulatory and Compliance Risk|
|Cyber Security, Technology and Information Risk|
|Counterparty Credit Risk|
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 risk management principles into standards that guide our day-to-day activities. For example, the group-wide investment approval framework sets out the approving authorities for investments based on size. Another example is the cost-of-capital framework which determines an appropriate performance hurdle for each active strategy that includes the cost of funding these strategies and a premium for additional risk undertaken.
We identify, measure, report and monitor all the risks that are assumed. GIC employs a suite of measures including volatility, risk concentrations, sensitivities to risk factors, liquidity profile and expected shortfall to identify and analyse the risks in the portfolio from both top-down and bottom-up perspectives. Each measure is designed to highlight a specific aspect of the portfolio that could lead to an undesirable outcome. These statistical measures are supplemented by a set of stress tests and scenario analyses. Reverse stress tests further help to identify otherwise undetected risks that could lead to large or sustained drawdowns. The risk management function sets and monitors performance and risk review thresholds independently to highlight potential changes in risk-taking behaviour and inconsistencies with the stated risk and return assumptions.
Legal and regulatory risks relate 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. Compliance risk refers to the risk of legal or regulatory sanctions, financial loss or reputational damage arising from non-compliance with applicable laws and regulations.
GIC’s compliance programme comprises robust policies, procedures, effective controls, monitoring and surveillance. The implementation of a rigorous compliance programme is underpinned by a strong culture of ethics and compliance. All staff are required to observe the policies and procedures set out in GIC’s Compliance Manual (incorporating the Code of Ethics), comply with all applicable laws and regulations, uphold exemplary conduct and act with integrity at all times. Regular and targeted training is conducted and an annual compliance quiz is administered, to reinforce awareness and understanding and to strengthen GIC’s compliance culture. The compliance programme also requires that all staff adhere to their confidentiality obligations and responsibilities.
The investment and operations teams collaborate with the legal and compliance function to manage legal, regulatory and compliance risks arising from the group’s investment activities. The legal and compliance function monitors compliance with laws and regulations, including laws on securities trading and investment, competition law requirements, financial crimes compliance, and licensing and regulatory approvals. 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.
GIC’s 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. We ensure that tax-related decisions are handled with professional skill, care and diligence, with relevant documentation that evidences the facts, considerations and decisions taken. We seek written advice, opinion or confirmation, where appropriate, to substantiate our tax positions. Our tax positions and obligations are clearly represented in line with applicable tax laws and regulations. We also engage with tax authorities in an open, constructive and professional manner.
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. For example, new investment products or strategies are subject to a risk identification and assessment process conducted by a cross-functional group. This ensures that all risks associated with the new product or activity are identified and analysed prior to investment or engagement. We must be satisfied that the required people and infrastructure, including systems, risk modelling, procedures and controls, are in place to manage these risks before the investment is permitted.
We continuously assess the control environment to ensure that any control weakness is promptly identified and addressed. Policies and procedures are established to safeguard the physical security and integrity of GIC’s technology and data assets. 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.
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.
As GIC adopts advanced information technologies (IT), we recognise the importance of having strong cyber security defences and robust internal controls for our operating environment. A dedicated team of cyber security and IT risk management professionals maintains our cyber defence capabilities, as well as oversees technology operations and usage of IT across the organization. With the evolution of our business and the IT landscape, we continue to invest in people, processes and tools to protect GIC’s technology resources and information.
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. Counterparty profiles are regularly reported to senior management. Other measures to mitigate credit risk include using netting agreements and programmes requiring counterparties to pledge collateral.
Managing reputational risk is part of GIC’s overall risk management framework. Our governance and investment processes ensure that we exercise caution and do not take on undue reputational risk in our pursuit of returns.
We require our staff to observe the applicable laws and regulations, GIC’s internal policies and procedures, to conduct ourselves in an exemplary manner at all times and uphold GIC’s fiduciary duty to our Client.
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 results. We are committed to developing our employees to their full potential for the long term through many learning programmes. We continue to develop a strong leadership bench for GIC, allowing us to build new investment capabilities and extend our investment and operating platforms.
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.