Small is beautiful? $300 billion Singaporean fund makes first New Zealand investments

Ultra modern, ultra rich Singapore
New Zealand is looking attractive to one of the world’s best-endowed sovereign funds, GIC Private Ltd of Singapore, which is breaking outside its traditional geographies as it seeks better yields for its mammoth portfolio of assets.

Singapore's GIC, the eighth-largest investment fund in the world, has made its maiden investment in New Zealand, spending $1.3 billion to buy stakes in five shopping malls and a piece of real estate in Auckland's Viaduct Basin.

What is more, many in New Zealand don't know that GIC's sister company, Temasek Holdings, another Singapore government investment vehicle, this time with $168b billion in its portfolio, has also bought a piece of the Kiwi dairy scene. Temasek last year bought into Yashili International, the Chinese infant milk formula manufacture which is currently building a $200-million plant in South Auckland, Pokeno.

GIC (formerly known as formerly known as the Government of Singapore Investment Corporation) has a massive $320 billion of assets under management. (To put that into perspective, George Soros’s Quantum Endowment Fund, the most successful fund in the world in 2013, has around $30 billion of investments.)

Seeking better returns

The real estate acquisition by GIC signals the normally-conservative sovereign fund’s continued forays into new parts of the world, seeking alternative returns against more traditional, but highly volatile financial market instruments.

The first investment sees GIC pay $1b for a 49% stake five New Zealand shopping centres, in a joint venture with trans-Tasman Westfield mall owner and operator Scentre Group.  Four of the malls are in Auckland and one in Christchurch, and they have a collective value of $2.1b.

GIC's has also announced a $313 million partnership with Goodman Property Trust to develop its Viaduct corporate centre on Auckland's waterfront.

The Goodman investment was hot on the heels of the GIC buying a minority stake in Istanbul-based Rönesans Gayrimenkul Yatirim for $394.61m.

Both New Zealand investments are under consideration by the Overseas Investment Office.

Song Seng Wun, regional economist and executive director for CIMB Securities Pte Ltd, based in Singapore, told Idealog the GIC’s foray into New Zealand signals a tough operating environment for the sovereign fund, and GIC’s investments in New Zealand real estate is an asset class it familiar and comfortable with.

 “The move is not unusual – this year, there has been a lot of activity from the GIC, including GIC’s investments in a mobile payments system in a US company.”

New reports say GIC was the lead investor in a $189 million round of capital raising by San Francisco-based Square, a mobile payments startup led by Twitter co-founder Jack Dorsey.

Song says GIC’s move to secure New Zealand assets is driven by the volatile financial markets environment.

“Around the world, the operating environment has been highly challenging. It is a case of having to make your money work harder, taking the risks to get the returns.”

According to the GIC’s annual report, its annualised 20-year real rate of return for the year ended 31 March 2014 was 4.1%. In US dollar nominal terms, it's five-, 10- and 20-year returns are 12.4%, 7% and 6.5% respectively.

GIC already has investments portfolios of various asset classes across 40 countries but its Australasian investment in the 2013/2014, according to its annual report, made up only 2% of its total asset portfolio of over $292b. Real estate investment made up only 7% out of its total asset mix, the bulk being in development market and emerging market equities (48%).

GIC, he says, has a very long-term mandate – 10 year horizon – and very deep pockets. “Ever since the global financial crises, their performance has been a bit over the place. More recently, however, the performance has recovered.”

Further, the Singapore population is increasingly becoming more vocal in how they see their sovereign funds performing, he adds.

NZ is new GIC territory for real estate

While New Zealand is unfamiliar territory, GIC is highly used to investing outside of Singapore.

Temasek and GIC were the most active sovereign wealth funds in 2013, chasing investments even as deal-making by their peers, especially China, dropped sharply, according to the Sovereign Wealth Centre. They made 40 and 38 direct investments respectively, or a combined $18b, or 34% of the world’s sovereign funds’ total allocation.

The sovereign fund has also been diverging money into private equity since 1982, growing its portfolio in this asset class.

In May, GIC acquired a stake in Brazilian online sports goods retailer Netshoes after opening an office in the Latin American country. Two months later, GIC invested an undisclosed sum in India's biggest e-commerce firm Flipkart.

The GIC and Temasek have also been active in investing in Chinese technology companies, including Beijing Xiaomi Technology Co., which is currently the top-selling smartphone manufacturer in China.

Temasek also invested US$100 million in China’s largest independent Internet data center services provider, 21Vianet Group. Temasek also invested in e-commerce companies, in 2013, including 58.com, an online marketplace, and a Beijing-based travel experience sharing service, BreadTrip.