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GIC's UK property exposure faces test after Brexit shock

Friday, June 24, 2016 - 15:35
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Singapore sovereign investor GIC's large investment in United Kingdom's property sector will leave it the most exposed among Asian state investors after Britain's shock exit from the European Union.

[SINGAPORE] Singapore sovereign investor GIC's large investment in United Kingdom's property sector will leave it the most exposed among Asian state investors after Britain's shock exit from the European Union.

GIC Pte Ltd, which manages US$344 billion in assets according to the Sovereign Wealth Fund Institute (SWFI), has 7 per cent of its portfolio invested in the United Kingdom, according to its annual report or an estimated US$24 billion.

The Singapore fund has been aggressively buying property in the developed world after the 2008 financial crisis to take advantage of depressed values, and London property market has became one of its most preferred destination. The UK exposure is the third biggest geographical exposure after the United States and Eurozone.

A source familiar with GIC's thinking told Reuters the fund is understood to have been looking at the Brexit scenario for over a year, but it takes a much longer view of its investments.

Among the considerations, GIC would also take into account factors such as London's role as a financial centre 20 years from now, the source said.

GIC, which manages Singapore's foreign exchange reserves, aims to beat global inflation. Over the 20-year period that ended March 2015, the GIC portfolio generated an average annual real return of 4.9 per cent above global inflation.

GIC, which doesn't disclose the overall size of its portfolio, declined to comment.

But in a separate event in Singapore GIC chief economist, Leslie Teo, took a sanguine view on investment strategy post-Brexit.

"If you have...some modestly long horizon...the world is not ending. Therefore, markets are going to push things down, there will be opportunity." he said.

"My overall concern still remains, that this is an environment where unfortunately risks are high and returns are low,"

POUND HAMMERED

After a bitterly contested referendum, Britain has voted to leave the European Union, results from Thursday's landmark referendum showed.

The pound was hammered as turmoil gripped financial markets as investors pondered the global economic costs of Britain's EU divorce.

"If Britain is to leave the EU, the hit will be in a more medium term itself," said Song Seng Wun, an economist CIMB private bank. "But if the UK continues to be relevant to the global economy, it will bounce back," he added.

Singapore investor Temasek Holdings is anchored mostly in Asia with the most significant UK-listed investment being an 18-per cent stake in Asia-focused bank Standard Chartered.

China Investment Corp doesn't break down its UK portfolio, but its most significant UK investment was a 10 per cent stake in UK's Heathrow Airport in 2012. CIC manages US$747 billion, according to SWFI.

GIC has done at least three large deals in the UK in the last three years including the 2013 purchase of US private equity group Blackstone's stake in London's Broadgate office and retail complex for around 1.7 billion pounds (S$3.17 billion). In the same year it backed a 1 billion pound lending programme for British offices, shops and warehouse property.

Last year GIC was among the institutional investors to acquire 33 percent of the combined businesses of Three and O2 UK for 3.1 billion pounds from Hutchison Whampoa Ltd.

REUTERS