Singapore's GIC to Invest Additional $30 Billion in Hedge Funds

GIC, Singapore's $376 billion sovereign wealth fund, intends to nearly double its commitment to hedge funds to some $60 billion over the next two to four years, people with knowledge of the matter said on Monday. The planned increase highlights the confidence that GIC, officially known as The Government of Singapore Investment Corporation, has in the alternative investment class to help bolster long-term portfolio performance as it increasingly explores outside traditional asset classes. GIC will be looking to distribute the extra capital across some dozen hedge fund managers that utilize various strategies to avoid concentrated risk and seek returns that are not tied to how the traditional stock and bond markets move.

The use of hedging funds has become increasingly attractive for large institutional investors that invest globally.

Hedge funds use a broad range of techniques to help portfolios hedge against market risk Hedge funds often seek returns in both rising and falling markets. Unlike funds for smaller and retail investors, they use investment methods such as long and short positions in equities, global macro positions, arbitrage or quantitative trading, the last two in both relative and absolute terms, as well as event driven strategies in, or after, major announced events. Hedge fund investors are keen to spread portfolio risk. GIC's objective has been long defined by a diversified global investment plan in both public and private assets worldwide.

The world's third-biggest sovereign wealth fund according to SWF Institute ranks among Singaporean's main government holding companies, which are the city-states de facto central bank and the nation's main source of non-oil exports and trade.

Singapore also invests its surplus revenue through its central bank under the moniker MAS (Monetary Authority of Singapore). Amid increasing financial and global uncertainty, sovereign-wealth funds such as Singapore's GIC see the potential for enhanced gains. Markets' volatility on interest rate outlook, inflation concerns as well as geopolitical jitters continue to push investors to take more alternative routes towards stable returns through strategies that include hedging the possible volatility in either falling, rising or flat stock markets.

Most, albeit not all, of alternative hedge fund managers demonstrate lower-correlated returns than stocks or bonds. For those that perform well the benefits for institutionals that invest to avoid some of the short term risks that may face market moving events; such funds may gain when stock markets lose some value. Large asset pools continue to build up investments in alt-assets, since a number of institutional investors, particularly for public pensions and sovereign wealth fund, now view them as necessary component in a globally diversified investment.

As has long been in its investment culture, diversification lies at the heart of everything the sovereign wealth fund does across all the public and private investments that it has made around the world.

That's why it seeks to move into additional classes of investments that, in its view, will not move in lockstep with one another. Those in the industry also consider manager selection an utmost task because the performance may vary enormously for and against managers. Given increased demand from such funds and a more maturing industry offering institutional-grade standards, it is becoming easier to place larger sums. The additional capital for hedge funds signals the further integration of the alternative investment strategy for some of world's biggest pools of public money managed by the sovereign wealth fund of Singapore's.