People visit the Merlion Park in Singapore on April 7, 2022. Photo:Xinhua

Singapore sovereign wealth fund GIC, one of the world's biggest investors, is bracing for muted investment returns and expects little respite from runaway inflation that has forced central banks around the world to tighten policy.

"Inflation itself is already a problem because we want to generate a return higher than inflation," Lim Chow Kiat, GIC's chief executive, told Reuters in an interview at the fund's 37th-floor office overlooking the financial district.

"Certainly we have to assume that the macro environment remains challenging for the foreseeable future," he said, highlighting rising interest rates and the impact on economies and financial assets, and the knock-on volatility in markets. 

GIC is ranked as the world's sixth-biggest sovereign investor with $799 billion in assets, according to research firm Global SWF. 

GIC said it reported an annualized 20-year real rate of return of 4.2 percent for the year to March versus 4.3 percent over the same period a year ago. The US was its biggest market, making up 37 percent of its portfolio, up from 34 percent a year ago.

Lim said central banks are likely to further tighten policy, at least in the short term, to fight inflation.

Concerns about runaway inflation have trumped central banks' worries about growth. The US Federal Reserve is likely to hit a key milestone on Wednesday with a rate hike that effectively ends pandemic-era support for the current economic environment .

GIC has been expanding its portfolio with real estate assets focused on office, retail and industrial, as well as other sectors such as data centers and infrastructure.

"Many of the real estate and infrastructure type investments actually have either automatic CPI (consumer price index) riders or an ability to raise rents once the lease ends," said Jeffrey Jaensubhakij, GIC's group chief investment officer.

The fund said it has raised its headcount in its real estate and infrastructure groups by about 35 percent over the past three years.

Last month, GIC agreed to buy a major stake in Europe-based The Student Hotel, with Dutch pension fund APG in a deal that valued the student accommodation and hotel group at $2.2 billion.

Reuters