The shift to a potentially high inflation regime, for its part, has “significant” investment implications.

“High inflation not only immediately reduces real returns, but its negative impact on economic stability increases risk premia on financial assets,” GIC pointed out in its report.

“Portfolio diversification will also be more difficult as few assets are spared the effects of worsening inflation and slowing economic growth.”

GIC Group Chief Investment Officer Jeffrey Jaensubhakij, who was also present at the press conference, presented other headwinds.

In the near term, the world will face further monetary policy tightening from central banks to combat persistently high inflation, as well as supply disruptions and weakening stimulus. budgetary. Longer-term challenges include high levels of debt accumulated in the global economy, a slowdown in favorable demographics in countries like China, and declining globalization.

Geopolitical changes, such as a fractured global power structure and increased rivalry between major economies, are also contributing to an increasingly uncertain environment.

At the same time, key trends such as the low-carbon transition and technological advancements are two areas that will present both risks and opportunities. For example, the latter will continue to disrupt jobs and businesses, but it can also be a source of economic growth and investment opportunities.

“The environment is uncertain – it’s been a while but it’s not getting better,” Mr Lim told reporters, while Dr Jaensubhakij noted that a landscape filled with headwinds means his “portfolio will continue to grow.” ‘to be difficult to manage’.

Asked what this means for the future performance of GIC’s investments, Mr Lim noted that the sovereign wealth fund has assumed for a number of years that returns in the future “are likely to be low”.

“Unfortunately, until we have more so-called restoration of value – whether it’s bond yields, earnings yields or dividend yields – the outlook for returns still isn’t great.”

DIVERSIFY THE PORTFOLIO, INVEST MORE IN INFLATION-RESILIENT ASSETS

Nonetheless, GIC said it will navigate these uncertainties by continuing with a diversified portfolio, maintaining price discipline and exploring alternative strategies.

It also prepares ahead by being “in companies or asset classes that can hold up better,” Dr. Jaensubhakij said.

On the one hand, the investor continues to deploy more money in real assets like real estate and infrastructure, which provide inflation protection and have generally outperformed nominal bonds in a high inflation environment.

He added that he had increased his staff in this field by more than 35% in the last three years to strengthen his investment capacities.

Additionally, the sovereign wealth fund has increased its allocation to some high-growth asset classes within equities, such as private equity, citing returns that can keep pace with high inflation.