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. CNA
What is this thing called 20 year annualised real rate of return? In simple term, it means averaging the returns over a 20 year period, to smoothen the ups and downs. There can be a 20% growth in some years, 0 growth or negative growth in some years, the 20 year spread will show maybe a 2 or 3% growth every year. What does this mean to the statistics of growth? Flat, little changes. Big gains will show as small gains, big losses can still be small gains or small losses.
The effect is that the fund will not have to face criticism for big losses or to gloat for big gains over an exceptional year. Would this impact the bonuses of the fund managers? If the bonuses are computed using the same 20 year annualised formula, the fund managers would not be seeing big bonuses or negative bonuses. It will average out as well. The fund will not have to pay big bonuses for one year and crawl back for big losses the next, meaning the bonuses will also be averaged out. This will be a weak point for attracting top fund managers or gamblers that want short quick returns and big bonuses, even cooking the books to show big gains in one year but losses for a few years.
What is a 3.4% annualised growth? If the fund had good growth in the first 10 years, like 10% or 20%, and chalking an annualised 3.4% growth over 20 years, what would be the growth rate of the last 10 years? Another simplified example, if the first 10 years, the fund's average annual growth was 10%, and the last 10 years, the average annual growth was 0%, the 20 year annualised growth of the latest year would be 5%, despite having no growth for the last 10 years. The pros and cons of using a 20 year annualised growth are obvious. Is there any country other than Singapore using a 20 year annualised growth formula?
Data/Statistics are used by those in power to present a sui sui pictures of what they have achieved over certain timeframe. No one in power would present a bad data to peasants unless they bo sia pan. Peasants must be aware of all this propaganda and make better decision come next election.
ReplyDeleteIf you just passively invest in U.S. 10-year and 30-year Treasurys, you get yields of 4.68% and 5.16% respectively. No need use Singaporean taxpayers' money to pay huge salaries to those so-called fund managers . . . . .
ReplyDeleteHow come never think of that? No need to pay billions in salary and bonuses. No need big losses in the hundreds of millions. Oops, oops, ....
ReplyDeleteThen no need 20 year annualised reports.