SINGAPORE -- Singapore's sovereign wealth fund GIC is shifting the focus of its investment team in China to look for newer "niche opportunities," a senior executive told Nikkei Asia, as the region's largest economy is expected to take longer to transform itself into a new economic model.
Jeffrey Jaensubhakij, chief investment officer, said that China, whose real estate market contributes to nearly a third of its economy, has "come to the end of its growth model" that relied on infrastructure and property construction.
"What that means is that many of the business areas that we used to think of as long-term opportunities then become suddenly curtailed," Jaensubhakij said. "And yet, new ones are only just slowly starting to emerge
The slump in China's property sector has become a significant drag on the broader economy and is exacerbating a liquidity crisis among developers. Authorities are trying to help revive the industry and restore buying sentiment by removing the floor on mortgage rates and encouraging local governments to acquire homes to convert them into affordable housing.
"Residential construction, real estate, even office [space] is somewhat over-supplied and that's not going to change very quickly," Jaensubhakij noted. "Whereas it used to be our main area of focus, then starting two, three years ago, we've been trying to push our teams away from that into areas where there's less being built.
Jaensubhakij was speaking ahead of the release of GIC's annual results on Wednesday, which showed that the fund delivered an average annual return of 3.9% above inflation over the past 20 years, a decrease from 4.6% recorded a year ago. The firm does not disclose the total value of its assets but analysts estimate it at about $770 billion.
The investor, which does not release one-year performance figures, attributed the lower returns to rolling out its strong returns for 2003 -- which followed the correction from the dot-com crisis -- from the 20-year performance as well as its cautious investment stance in recent yearIt also noted weaker returns in fixed income and emerging market equities. "The profound uncertainty we face is likely to continue to weigh on returns," Chief Executive Lim Chow Kiat said in its annual report.
By geography, the U.S. remains the largest investment destination that formed 39% of GIC's portfolio in the year to March, up from 38% a year ago. This was followed by Asia excluding Japan -- a metric that includes its Chinese assets -- which fell from 23% to 22%
Despite the ongoing property crisis in China, Jaensubhakij said GIC sees opportunities in its residential and commercial properties in major cities with a large inflow of people. In residences, for example, he said GIC has invested in and continues to see "a lot of demand" for rental estates.
In June, GIC reportedly teamed up with China's Vlinker, a leading rental housing operator backed by Warburg Pincus, to form a $180 million joint venture. The vehicle plans to acquire and develop affordable rental housing projects in Shanghai, Vlinker said in its announcement without naming Gic
Earlier this month, GIC was also reported to have acquired an additional 48% stake in Shanghai's largest single-building shopping mall from China Vanke, a state-affiliated property developer
"As people have looked at Chinese real estate and said I need to get out of everything," Jaensubhakij said, "some of the best positioned retail assets are still quite valuable, and if you can buy them at a price that you can earn a good return on them, if they're managed well... I think we can still invest
"But it's different from the areas that we used to invest more heavily on in China before," he added.
By asset class, GIC has increased its exposure to private equity from 17% to 18% of its portfolio in the year to March. Its allocation to public equities and real estates were unchanged at 30% and 13%, respectively, of its overall investments. Nominal bonds and cash decreased from 34% to 32%.
