Singapore’s sovereign wealth fund GIC has stumped up around US$1 billion this week for assets in logistics and electricity transmission infrastructure that align with its strategy of seeking inflation-protecting assets in anticipation of medium-term disruption from rising prices.
The fund, with total assets under management estimated at US$690 billion by Global SWF, cautioned last year that a decade of stagflation could undermine its mandate to achieve inflation-beating long-term returns to add value to the island state’s foreign exchange reserves. Up to 2022, the investor achieved an average annual return of 4.2 per cent above inflation, but in the financial year to March 2022 it increased its exposure to real estate from 8% to 10% of AUM, supported by major acquisitions in the student housing and office sectors in Europe.
This week, GIC signed an agreement with Neoenergia, the Brazilian subsidiary of Spanish energy group Iberdrola, to develop a US$472 million electricity transmission network in Brazil. The move comes amid growing interest in Latin America’s biggest economy following the election of President Lula da Silva and will see the partners co-invest in 1,865km with an average concession term of 25 years. GIC will also be Iberdrola's preferred partner for future auctions for Brazilian transmission assets. Solar has emerged as Brazil’s fastest growing sector, growing 64% in 2022. With GIC’s backing, the Spanish electricity company can develop the transmission infrastructure to support growth in new solar electricity production.
Iberdrola is seeking to capitalize on the development of renewable energy, which accounts for at least 90% of Brazil’s total electricity generation. While hydroelectricity is the country’s biggest producer, drought has undermined generation and in turn eroded the country’s manufacturing productivity.
At the same time, GIC agreed to buy a portfolio of six logistics assets in Japan for more than US$800 million from Blackstone. The deal is believed to be the biggest real estate deal in Japan so far this year. The deal follows the acquisition of a portfolio of 15 Prince hotels and 16 additional leisure properties in Japan from Seibu Holdings last year, for an estimated US$1.3 billion.
GIC began its push for Japanese logistics real estate in 2008 when it acquired all of ProLogis’ property fund interests in Japan and China operations for a total cash consideration of US$1.3 billion. GIC has also interests in Japan’s data center sector, having signed a US$1 billion joint venture with Equinix in 2020 to develop xScale facilities in Osaka and Tokyo. Both logistics and data centers are major growth areas as the digital economy expands, requiring an increase in global connectivity and hybrid multicloud solutions as well as last mile delivery to serve e-commerce.