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Singapore’s GIC sovereign wealth fund has signalled growing caution about investing in the fast-growing private credit asset class, citing shrinking yields and the market’s lack of experience of a sustained downturn.
GIC, which manages some $800bn of assets on behalf of the city state according to the Sovereign Wealth Fund Institute, has not publicly disclosed previous investment in private credit, but has long been a big player in global private equity and real estate.
“We are now at a part of the cycle where we feel that spreads are a lot tighter [and] valuations are also higher,” said Bryan Yeo, GIC’s chief investment officer ahead of the release of the fund’s annual results on Friday. “Hence we are raising the bar in terms of further deployment into the private credit space.”
Yeo highlighted the market’s lack of experience of a major downturn as a source of potential concern.
“In hindsight we haven’t really seen a major credit default cycle [in private credit],” added Yeo — excepting what he called a “shortlived spike” during the Covid pandemic.
GIC is “raising the bar” on new investment in private credit © Edgar Su/Reuters
His comments are the latest in a series of warnings about the risk of investors rushing into the rapidly burgeoning private credit sector in search of higher yields amid a cooling of the private equity market and increased equity volatility.
Private credit has boomed in the past decade as tighter regulation since the 2008 financial crisis increasingly stopped traditional banks from lending to riskier companies, creating an opportunity for “alternative” players including groups like Blackstone and Apollo Global Management.
In June a group of US bankers, economists and officials warned that private credit could become a “locus of contagion” in a future financial crisis and be a fresh amplifier of systemic stress.
US spreads for leveraged loans, the public market’s analogue to private credit, are around 4.34 percentage points, just above a low of 4.27 points over the past 12 months and comfortably below the five-year average of 5.08, according to data from JPMorgan and PitchBook LCD.
US borrowers have taken advantage of low financing costs to issue about $100bn in leveraged loan deals so far in July, well above June’s $66bn and the most since January, the data shows.
GIC said its private credit arm was part of its wider private equity team and focused on directly financing private equity-backed companies, which Yeo said gave the fund an advantage over many other private credit investors who were “siloed” off from the underlying asset.
“Is the valuation of the equity reasonable? Is it overvalued? How are we thinking about the business? Because, you know, in general credit investors and equity investors approach credit and equity investments quite differently,” said Yeo.
GIC publishes few detail about its investment performance, with Friday’s results not breaking down its exposure to private equity, credit or specific countries.
Unlike fellow Singaporean fund Temasek, GIC does not reveal its returns over the past year. Its preferred performance metric is its 20-year rolling rate of return above inflation — which it said was 3.8 per cent at the end of March. That was the lowest rate since 2020, when it was 2.7 per cent.
A “reference portfolio” of 65 per cent global equities and 35 per cent bonds has outperformed the fund — which also invests in real estate, private equity and private credit — on a nominal basis over five, 10 and 20 years. However, GIC stresses that its portfolio is less volatile.
The fund said it increased its exposure to equities including private equity by five percentage points to 51 per cent of its total portfolio in 2025. Its fixed income allocation fell from 32 per cent to 26 per cent, while “real assets” increased by one percentage point to 23 per cent. It said the US remained the largest recipient of its investment cash.
GIC separately warned in its outlook that it continued to see the “macro impacts of the rise of populism” globally in higher government debt and lower appetite for structural reform.
The fund said it had trialled an AI agent as a member of its investment committee and it was experimenting with giving such agents different personality types including “contrarian investor” and “optimistic investor”.
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It also said it was investing in artificial intelligence companies, but avoiding frothy valuations and concentrating on those that had defences against competition, citing investments including in data analytics company Databricks and digital infrastructure company Equinix.
“We seek to avoid short term hype as well as overvaluations by focusing on companies with strong, durable moats,” said Yeo.