Government of Singapore Investment Corp., managing more than $100 billion, boosted cash to levels exceeding the 2008 global financial crisis as it pared stocks and bonds, reducing its holdings in Europe.
Cash allocation almost quadrupled to 11 percent of its portfolio in the year ended March from 3 percent a year earlier, GIC, as the sovereign wealth fund is known, said in its annual report. Stocks fell to 45 percent from 49 percent as it pared equities in developed markets, while bonds dropped to 17 percent from 22 percent.
GIC is reducing its investments as the MSCI World Index (MXWO) posted its biggest slump since the 2008 global financial crisis and market volatility reached the highest level in more than two years. Trading options have become limited for government funds seeking to preserve capital as policy makers across the world prepare for a deeper impact from Europe's debt woes.
"There are not many safe havens, so cash is king," said Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co., which oversees about $1.5 billion. "It's logical for everyone to cut investments and take a wait- and-see approach. The economic downturn will last for a while before we can see certainty and a swing-back in investment sentiment."
GIC's holdings in Europe fell to 26 percent from 28 percent, with those in the U.K. unchanged at 9 percent, it said. Within Europe, GIC's assets in Portugal, Ireland, Italy, Greece and Spain made up 1.4 percent of its portfolio, mainly held in real estate and stocks in Italy and Spain, it said.
Assets in the Americas were unchanged at 42 percent, with 33 percent of the total portfolio in the U.S., it said. It raised its allocation to Asia to 29 percent from 27 percent.
"The market experienced many twists and turns over the last year," Lim Siong Guan, president of GIC, said in its annual report today. "There will be greater uncertainties in the future."
Holdings in so-called alternative assets increased to 27 percent from 26 percent, it said, with a gain in private equity and infrastructure investments. Real estate was unchanged at 10 percent of its portfolio, it said.
The so-called 20-year annualized real return was 3.9 percent as of March 2012, unchanged from the previous year, it said. The annualized nominal rate of return in U.S. dollar terms was 3.4 percent over 5 years, 7.6 percent over 10 years and 6.8 percent over 20 years, it said. The fund doesn't report an annual return or disclose the actual size of its portfolio.
The 5 and 10-year returns beat two composite portfolios of stocks and bonds it tracks, while it underperformed over a 20- year period, said GIC, which was set up in 1981.
The International Monetary Fund said yesterday that the euro-area debt crisis has exacerbated global financial instability and an orderly adjustment process is likely to be prolonged and costly.
In Asia, Singapore's economy unexpectedly contracted last quarter and China and South Korea cut interest rates this month. Europe was plunged into fresh market turmoil as calls for bailout aid sent borrowing costs surging, while Moody's Investors Service lowered Germany's rating outlook to negative.
The MSCI World Index dropped 7.6 percent in 2011, the worst annual performance since 2008. The decline narrowed to 1.7 percent for the year ended March.
The cost of insuring sovereign bonds from default in Western Europe reached a high this year of 382.5 basis points before falling to 255.24 basis points, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. A similar measure tracking Asia Pacific reached a high of 232.86 on Oct. 4 before declining to 130.05.
"Due to the heightened uncertainty in global markets, we allowed the cash inflow from investment income and fund injection to accumulate during the year in preparation for better investment opportunities," Ng Kok Song, GIC's chief investment officer, said in the report. "We reduced the allocation to bonds because bond yields in the developed markets had been pushed down to abnormally low levels by the flight to safe assets and central bank intervention."
In the year ended March 2009, when its investments were hit by its stake in UBS AG (UBS), GIC raised its cash holdings to 8 percent from 7 percent, and reduced its bond investments to 24 percent from 26 percent, it said at the time.
China's sovereign wealth fund said last week it will invest with a longer-term focus after it posted a 4.3 percent loss on its overseas holdings last year because of declines in global commodity prices.
Net income at the $482.2 billion fund, with a resources- heavy portfolio, fell to $48.4 billion in the year ended Dec. 31, Beijing-based China Investment Corp. said in its annual report on its website on July 25. The overseas investment performance was the worst since the fund was set up in 2007, and compares with an 11.7 percent return in 2010. CIC was set up to improve returns on foreign-exchange reserves by investing overseas. In China, the fund's holdings are largely limited to stakes in financial institutions for the government.
Temasek Holdings Pte, Singapore's state-owned investment company, said it spent the most on new holdings in four years as it added more energy and resources producers to its portfolio. The company said it made S$22 billion ($18 billion) of investments in the year to March 31, boosting assets 2.6 percent to a record S$198 billion.
The investment firm said profit for the year declined 16 percent as contributions from units fell amid the global slowdown. Net income dropped to S$10.7 billion from S$12.7 billion a year earlier, it said in its annual report. Temasek's total shareholder return averaged 17 percent since its inception in 1974.
Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., held holdings of Treasuries and mortgages steady in June after saying that U.S. securities are still the safest bet. Gross kept the proportion of U.S. government and Treasury debt in his $263 billion Total Return Fund unchanged at 35 percent of assets last month, according to a report on the company's website. Pimco doesn't comment directly on monthly changes in its portfolio holdings.
Gross left the Total Return Fund's net cash-and-equivalent position unchanged at negative 21 percent last month. The fund can have a so-called negative position by using derivatives, futures or by shorting.
"Looking ahead, we assess that the investment environment will be characterized by a global economy struggling to return to sustainable growth," GIC's Ng said. "The medium-term investment outlook is therefore challenging."