Singapore’s GIC, one of the world’s largest institutional investors, has warned that the golden age for private equity firms has “come to an end”.

The sovereign wealth fund, which has estimated assets of more than $700bn and is one of the largest backers of buyout funds, said a new era of higher interest rates and volatility had created challenges.

“Many of the things that were tailwinds for the private equity industry have come to an end . . . and I don’t think they are coming back any time soon,” said chief investment officer Jeffrey Jaensubhakij, citing the lucrative mix of high valuations, lower leverage costs and low interest rates of the past few years.

“Today, unfortunately, there’s both a supply and demand problem,” he added, referring to the number of assets available at a reasonable price and the number of investors wanting to put money into the asset class.

Speaking ahead of its annual results on Wednesday, GIC told the Financial Times that opportunities were available in the private market and it was allocating money towards logistics, infrastructure and other inflation-insulated assets.

Wednesday’s annual report showed GIC delivered an average annual return above inflation over the past 20 years — its main performance metric — of 4.6 per cent for 2023, up from 4.2 per cent a year earlier and is its highest level since 2015.

Chaired by Singapore’s prime minister Lee Hsien Loong, GIC does not publish its assets under management but has increased its allocation to private equity to 17 per cent of its portfolio from 9 per cent in 2017, becoming a global investment force in everything from start-ups to toll roads.

Market volatility, higher interest rates and falling valuations have left the private equity industry struggling to raise money this year. Fundraising across private markets is on track this year to fall almost 30 per cent compared with 2022, according to a report released this month by Bain & Co.

GIC said it could increase its private market exposure over the year ahead should the right investments emerge. “The private market does play to the advantage of a long-term investor like ourselves,” said chief executive Lim Chow Kiat. “If the market offers more opportunities, certainly we will direct our capital accordingly.”

GIC said the fundraising drought in private markets was an area of opportunity. Many global private equity firms are facing pressure from their investors — who cannot allocate to new funds until they get some cash back — to sell parts of their portfolio “at reasonable prices”, Jaensubhakij said.

Some investors have also “overcommitted” to private markets and are trying to offload stakes with up to 20 per cent discounts, he added. “We’ve had a couple of transactions recently of a reasonably large size.”

GIC said the overall outlook over the next 12 months continued to be challenging, with global interest rates remaining elevated, the chances of a recession relatively high, and “chronic geopolitical risks”.

Over the past year the Singapore state fund’s allocation to the US and Europe increased 1 percentage point each to 38 per cent and 9 per cent respectively, while decreasing to 23 per cent from 25 per cent in Asia excluding Japan. GIC has also pulled back on its investments in China in recent years as the mainland economy ground to a halt during the pandemic and was hit by property market turmoil and regulatory crackdowns.

GIC said China’s economy was unlikely to receive the level of stimulus seen in previous downturns. “Even post-Covid deal flow has been extremely low. We would expect to participate when it normalises . . . we have to wait,” said Lim.

The state fund said it saw opportunities in other parts of Asia as multinational companies diversified their supply chains to cut their reliance on China. “India is a great example where we think more modern logistics will have to be built,” said Jaensubhakij, adding that “south-east Asia should also be a beneficiary of some of these supply-chain moves”.

This article has been republished to correct the Singapore state fund’s allocation to the US and Europe

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