Higher real interest rates may be a “difficult starting point” for almost all asset classes, but for long-term investors, the current macroeconomic environment holds promise, says Lim Chow Kiat, CEO of GIC.
“For long-term investors, higher asset yields is a good thing. The compounding is the driver of longer-term return,” says Lim on a panel at the Bloomberg New Economy Forum on Nov 16.
The world may still be facing inflationary pressures but there have been some “good structural developments”, says Lim. He highlights the US as an “interesting market”. “Valuations may not be quite there yet, but if you look at some of the longer-term trends, for example, government incentives to industrialise the economy, we are confident that down the road, we should be able to find good investment opportunities from that.”
Without government support, it is difficult to kickstart ventures in certain fields, says Lim. “In quite a few areas, government incentive is almost a must.”
He cites the fight against climate change as an example. “Decarbonisation is going to take money. It is going to result in higher costs. Even with new technology, you need initial capital. Private capital can come in, but to really scale, you will have to explore blended finance and other arrangements.”
While private capital continues to flow into innovative solutions, the success rate of start-ups is “not exactly super high”, says Lim. “Everyone has to go in with their eyes open. Certainly, it is well-worth to go into that space because they really can change the world.”
See also: GIC sees Australian real assets as a haven from bumpy markets
The amount of government support a venture receives is “certainly an important consideration” for GIC in its own investment decisions, says Lim.
Venture capital will remain an important part of finance, says Lim. That said, start-ups face scarce capital. “A lot of growth or start-up companies need to ensure they have the cost discipline to stay through this period. For those who play the long game, they will benefit. They will enjoy a more rational competitive landscape.”
Lim also points to “interesting trends” of supply chain realignment, which he believes would benefit India and Mexico.
See also: Greening businesses and countries will take time: Temasek CEO
On attracting talent, Lim highlights the importance of a supportive environment, which the Singapore government has been doing. “It can be down to simple things like housing and visas.”
Talent is mobile and prefers to go to where other talents are, says Lim. “Talent goes to where there is some predictability or an environment that allows them to do what they want to do… To that extent, Asia is seeing some pockets. Singapore has that benefit [too]; we just have to deal with our capacity challenge.”
