SINGAPORE: Sovereign wealth fund GIC's returns fell for a third straight year to a six-year low in FY2025/2026, as it took less risk and prioritised resilience amid what it called "profound uncertainty".

GIC also announced it will refresh its investment framework to be more flexible as it navigates what CEO Lim Chow Kiat called a "fundamentally changed" world.

In its 2025/2026 annual report released on Friday (Jul 24), GIC said its 20-year annualised real rate of return stood at 3.4 per cent, down from 3.8 per cent the year before and the lowest since FY2019/2020's 2.7 per cent.

Before adjusting for global inflation, the 20-year annualised nominal return was 5.6 per cent.

GIC uses a rolling 20-year metric, which measures average annual returns over the most recent two decades, as its primary performance indicator. This year's figure covers April 2006 to March 2026, after FY2004/2005 was dropped and FY2025/2026 added.

Mr Lim said GIC was intentional about prioritising resilience through diversification and took less risk.

"This moderated returns, but it is consistent with our long-term mandate: it gave us greater downside protection and more flexibility to act on opportunities as they emerge," he said.

GIC manages Singapore's reserves and contributes to the annual national budget, with a mandate to preserve and enhance the purchasing power of the reserves.

Mr Lim said the constraints ahead are tightening and the outcomes are widening. GIC pointed to the changing world order, rising fiscal risks and advances in artificial intelligence as forces that will continue to shape the investment landscape and impact portfolio returns.

Still, opportunities remain. GIC named AI as a key investment focus and said it plans to deploy an additional US$30 billion into hedge funds over the next three years, on top of investments that have tripled over the past decade.

AI STRATEGY

Group chief investment officer Bryan Yeo said the AI ecosystem is growing more complex as the technology scales, making it more difficult to pick winners.

Near-term breakthroughs are not always indicators of long-term success, he said, adding that AI adoption has also been uneven.

Rather than seek broad exposure, GIC invests across three categories: enablers, monetisers and adopters. Examples include Vantage Data Centres and Anthropic as enablers, Databricks and Ramp as monetisers, and Athenahealth and Eli Lilly as adopters.

Early investments were concentrated in enablers before shifting to monetisers, said Mr Yeo. "We think that in the coming few years, there will be a lot of value creation in the adopters space," he said, adding that identifying the winners will be a challenge.

When assessing companies, GIC looks at structural advantages, leadership and business momentum, while watching for risks such as overregulation, stretched valuations, growth bottlenecks and technology or business model risks.

Asked about a possible AI bubble, Mr Yeo said GIC aggregates its investments to determine its exposure.

"We ask ourselves: Do we have too much? Do we have too little? Do we have just right?" he said, adding that the fund also considers how correlated its investments are.

He said the non-AI space may be getting neglected, with valuations potentially cheaper there.

"For a long-term investor, if you look out 20 years, you don't want to have everything in just AI alone," he said.

Mr Yeo added that it is getting harder to define what counts as an AI investment as the technology becomes more pervasive, requiring GIC to continually reassess its holdings. How quickly or strongly profits in different areas will grow also remains uncertain.

“It’s not just science, it’s also art. Being able to assess, being able to speak with our business partners, speak with our investee companies to understand how narrow and how broad the opportunity set is going to be,” he said, adding that GIC is also focused on disruption risk.

A REFRESHED INVESTMENT FRAMEWORK

GIC began transitioning to a refreshed investment framework on Apr 1. Mr Lim cited two reasons: the world has "fundamentally changed", and GIC has built up capabilities it should leverage through greater flexibility.

At the heart of the new framework is a strategic portfolio representing the government's risk appetite and long-term return expectations. It comprises three broad asset groups: equities for growth, fixed income for income and real assets to protect against inflation. GIC did not disclose the weighting of each asset class.

Rather than group by traditional asset classes, GIC will focus on underlying factors that drive returns, which it said allows for more nimble and flexible capital allocation.

For fixed income, GIC will have flexibility to adjust allocations to navigate uncertain rate environments, and can diversify its physical assets for resilience against inflationary shocks.

"These changes will make the GIC portfolio more resilient against future uncertainties, while capturing excess returns across different market cycles," it said.