GIC’S mission is getting harder in a darker and more complex geopolitical climate, but the sovereign wealth fund still believes in the long-term potential of the US economy, Senior Minister Lee Hsien Loong said on Wednesday (Nov 13).
Estimating risk-adjusted returns will be much harder, said SM Lee at the GIC Insights 2024 dinner in New York City.
“We are no longer just calculating stochastic, quantitative risks that we can model and estimate, but also assessing uncertainties that are harder to predict, and scenarios with unquantifiable probabilities and unforeseeable consequences.”
Fund managers such as GIC now have to deal with “a whole different set of challenges altogether”, he added. They face questions such as whether normal cycles of recession and recovery will persist or be disrupted, and whether markets will continue to function or be unevenly affected by geopolitical events.
Even so, GIC continues to see investment opportunities in the world’s largest economy, especially in climate technology and sustainability, said SM Lee, who is board chairman of GIC.
Besides helping to decarbonise the global economy, such investments can also benefit local communities, he said, citing two portfolio companies in the US.
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One is building a battery plant in West Virginia, which will produce iron-air batteries for long-duration energy storage – and create hundreds of jobs. Another company is working with school districts across the US to electrify school buses.
“We fully intend to continue investing in the US and maintaining American assets as a substantial part of our overall portfolio,” he said.
A history of partnership
This year marks the 40th anniversary of GIC’s presence in the US, with both having built a “strong, productive and mutually beneficial partnership” in the last four decades, said SM Lee.
The fund opened its first international office in New York City just three years after being set up in 1981, as it knew from the start that it needed to get into the US markets.
Today, the US remains the world’s most “major, dynamic and resilient economy” and the destination of choice for talented and enterprising people all over the world, said SM Lee.
Currently, one-third of GIC’s global portfolio is in the US. The fund has offices in New York and San Francisco, and “hundreds of business partners” in the country.
Granted, GIC’s decades of investing in US markets have not always been smooth-sailing, SM Lee noted. Rough times included the Black Monday stock market crash in 1987, the dot-com boom and bust, the 2008 Global Financial Crisis and the Covid-19 pandemic.
But the sovereign wealth fund has been able to weather these storms because it takes a long-term view, he said. Unlike other market players that have shorter time horizons and a clear exit strategy, there is no predetermined end date for GIC.
“We can hunker down and stay invested through boom-and-bust cycles, because GIC’s investment horizon is not measured in just years or even decades, but by fundamentals and intrinsic value,” he said.
GIC’s total portfolio has grown steadily and achieved an average annual return of about 4 per cent over the past 20 years in real terms, he noted.
“We have stayed invested in the US through thick and thin, because of its vital role in the world economy,” he said. “And we continue to have faith in the US economy’s vibrance, dynamism and sheer resilience.”
SM Lee concluded that in a world where “zero-sum mindsets” are growing more prevalent, he was very glad to have investor conferences such as Wednesday’s event, where people can candidly exchange views and “work towards creating wealth and prosperity in a mutually beneficial way”.
