utility-based) that provide long-term contracted incomes, downside protection and steady returns, and real estate sectors (e.g. For example, we see opportunities in infrastructure assets (e.g. Today, we are well-diversified in our range of alternative investments with our exposure spanning other areas like infrastructure, private debt, bespoke financing, hedge funds, and more – all of which we invest directly in as well as indirectly through funds and other platforms.Īlternatives remain a strong source of alpha for GIC globally and we seek investments with good risk-reward. GIC was amongst the earliest institutional investors to move into the illiquid alternatives space, investing in real estate and private equity from the mid- 1980s. Managing the portfolio with a long-term horizonīeing a long-term investor with a flexible mandate has allowed us to reap illiquidity premia from investing in alternative asset classes, non- traditional sectors and less mature markets.
To do so, we are continually strengthening our top-down and bottom-up capabilities and competitive advantages, including: Given the lower beta returns outlook and rising uncertainty in recent years, GIC has been working hard to find attractive alpha opportunities and increase the overall resilience of our portfolio. The combination of the PP (beta) and AP (alpha) overlay gives rise to GIC’s actual portfolio exposures and returns, whilst adhering to the risk parameters set by our Client, the Government of Singapore.Īt GIC, we seek alpha with our mandate in mind – to preserve and enhance Singapore’s foreign reserves. The intention is to increase the potential return while understanding and managing the additional risks taken against that of the PP.
Seeking alpha pdf plus#
The active strategy seeks to generate alpha or excess returns above its “cost of capital”, which is the expected return from the investments in the PP that would have to be sold to fund this strategy, plus other risk premium for any additional risk taken. Each active strategy replaces part of the passive investment exposure in our PP with a skill-based, value-adding investment opportunity. GIC’s alpha is represented by our Active Portfolio (AP), which comprises an overlay of active strategies. Each asset class has its own risk and return profile, and through the diversity of asset classes, the PP is expected to generate optimal risk-adjusted returns over a 20-year period. While some studies have shown more persistent alpha performance from private equity fund managers, this has also fallen in recent years as the sector has matured, grown and become much more competitive.Īt GIC, our “ beta” is represented by our Policy Portfolio (PP), which comprises a diversified combination of six core asset classes, namely Developed Market Equities, Emerging Market Equities, Nominal Bonds and Cash, Inflation-linked Bonds, Private Equity, and Real Estate. The study also highlighted that past performance does not guarantee future performance, as most funds in the top quartile of past five-year returns did not repeat their ranking over the next five years. For fixed income funds, only 8% beat their benchmarks. Even then, performance differs depending on how investors assess fair market value as a result of their interpretation of new market information.Ī recent study on active management funds in the US found that only 23% of such funds managed to beat their benchmarks over the 20- year period. This challenge is often observed in the public markets which are deemed to be fairly efficient based on information flow, high liquidity, and market transparency. Indeed, alpha is a zero-sum game, with one investor’s gain marking another’s loss. The challenge of alphaĪchieving consistent alpha over the long term is far from easy.
Given the lower market return outlook, global long-term investors like GIC are constantly looking for new ways to find returns beyond their benchmark, or alpha, while strengthening the resilience of their portfolios. While volatility brings new opportunities, strong headwinds to global growth, including uncharted policymaking, rising debt levels, geopolitical strains, and lower population growth, complicate how investors will make meaningful returns from their portfolios. The rapid rise in global uncertainty, due in large part to the COVID-19 pandemic, alongside unprecedented low interest rates and very high valuations, have made the hunt for “alpha” more important and more competitive than ever before. This article describes GIC’s approach to generating alpha, or returns beyond the benchmark, by leveraging our top-down and bottom-up capabilities and comparative advantages.
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