The sovereign wealth fund is meeting new opportunities with a sharpened focus on diversification, granularity and agility
THE conflict in the Middle East reminds us how quickly the global environment can change. Disruptions in the Strait of Hormuz threatened a significant share of the world’s oil supply, highlighting the risks posed by concentrated spare capacity and critical chokepoints.
Within days, oil prices rose sharply, challenging the positive macroeconomic outlook that markets had anticipated at the beginning of the year – that of moderating inflation, stabilising interest rates and steady growth prospects.
More broadly, the conflict has exposed vulnerabilities built up over years across energy systems, supply chains and the financial architecture.
At GIC, we have long felt that the gravest risks are those that accumulate quietly and then surface abruptly.
Today, in the global economy, constraints are tightening while outcomes are widening, creating a world of greater scarcity and complexity. These constraints do not exist in isolation.
Geopolitical fragmentation, limited fiscal flexibility and bottlenecks in technology and energy reinforce one another as their impacts play out unevenly in markets.
For long-term investors, this widens the range of possible outcomes, making it harder to rely on any single view of the future. Our response is to prepare, not predict.
We build our portfolio around three key principles – diversification, granularity and agility – which guide how we make our portfolio more resilient, identify opportunities early, and adapt to a more volatile environment.
Geopolitical risk: Structural not episodic
Historically, geopolitical crises followed a familiar pattern: Sharp, short-term disruption followed by a normalisation of risk premia once the crisis passes. Past episodes such as the Gulf War and 9/11 caused brief market shocks; prices fell sharply and recovered once conditions stabilised.
For investors, these swift recoveries often turned initial sell-offs into buying opportunities.
Today, geopolitical risks are no longer episodic disruptions but structural changes, with more persistent and uneven market effects. Countries are prioritising resilience and strategic autonomy, reshaping supply chains and capital flows in the process. Investments in defence, industrial policy, export controls and other forms of economic and financial statecraft are becoming the norm.
These shifts are colliding with physical constraints in computing power, critical minerals and energy. Efforts to secure advanced semiconductor production, rare earth supply chains and key energy routes are increasing both the cost and complexity of building strategic capacity.
The financial burden is falling on governments already facing high debt levels. While fiscal constraints are not yet binding in most major economies, sustained spending pressures may strain those that rely heavily on foreign financing or have less policy credibility.
Together, these dynamics are changing how markets price geopolitical risk. Rather than temporary dislocations, shocks now lead to more enduring and differentiated country risk premia, higher costs of capital, and greater divergence between winners and losers.
In response, we have enhanced diversification, not only across geographies and asset classes, but also across underlying sources of risk and return.
This includes assets with durable cash flows, low correlation to traditional markets, and structural demand less dependent on macro conditions, such as intellectual property rights and music royalties.
We have also built exposure to structural diversifiers such as gold and inflation-resilient real assets.
AI: Dispersion and disruption
Artificial intelligence is advancing rapidly, but so are the constraints on its progress.
Demand for computing power has grown exponentially, requiring outsized investments in semiconductors and data centre infrastructure. Shorter chip development cycles and increasingly complex models reinforce this trend. Power availability, grid capacity and skilled labour are also becoming critical bottlenecks.
These are opportunities for long-term investors.
How value is distributed across the AI ecosystem remains uncertain. The large language model layer is consolidating around a few frontier players, while commoditisation risks rise elsewhere.
Meanwhile, AI adoption is uneven across geographies, industries and enterprises.
As a result, outcomes are diverging in terms of who captures value, who is disrupted, and how durable competitive advantages prove to be.
Valuations continue to swing between periods of enthusiasm and cautious reassessment. We also see more uneven distribution of gains among firms, sectors, regions and between capital and labour, as AI amplifies advantages for those with scale, data, computing power and the ability to adapt quickly.
These dynamics inform how we invest. Rather than seeking broad exposure to AI, we assess opportunities with granularity along the value chain of enablers, monetisers and adopters.
We focus on areas with the most acute constraints, looking for firms with enduring moats, strong execution capabilities and the ability to compound early wins into long-term advantage.
Among the enablers, we built early conviction in hyperscalers and core AI infrastructure to capture multi-year demand from training, inference and agentic AI.
We target bottlenecks in advanced semiconductor manufacturing and design, where rising complexity creates structural scarcity and sustained demand.
Beyond semiconductors, we invest in the physical infrastructure that AI requires: power, grid and cooling capacity to support the growth of data centres.
In the application and adoption layers, it remains too early to identify the long-term winners. Software illustrates this challenge well, where AI disruption is real but unlikely to be uniform.
AI-based coding tools are reducing development costs and challenging traditional software-as-a-service pricing models that charge per user.
However, not all software businesses are structurally impaired. Companies with deep customer integration, proprietary data and mission-critical workflows are likely to remain resilient.
Energy: Diverging paths in a constrained world
Energy has become one of the most constrained and contested parts of the global economy. Geopolitics, the AI boom and the climate transition are converging on the same energy supply and infrastructure bottleneck.
Electricity demand is accelerating as economies electrify and hyperscalers expand data centre capacity at an unprecedented scale. At the same time, geopolitical tensions have made energy resilience and domestic supply security top national priorities.
Yet infrastructure is struggling to keep pace. Grid investments continue to lag demand growth, while permitting and interconnection delays, limited transmission capacity, and shortages of transformers and other electrical equipment are slowing the expansion of power systems.
Countries are pursuing divergent energy pathways as they balance security, affordability and climate commitments. The result is wider variation across markets in energy costs, industrial competitiveness and the pace of transition.
Navigating this landscape requires agility – the ability to respond to each market’s energy calculus on its own terms.
At GIC, we see opportunities in businesses that strengthen resilience.
These include regulated electric networks and utilities with inflation and volume protection; grid efficiency solutions where slow build-out drives demand for technologies that ease congestion and improve energy delivery; and power equipment businesses with strong pricing power and resilient returns under varying economic conditions.
Prepared for change, guided by purpose
The global investment landscape continues to shift amid tightening constraints and widening outcomes.
Geopolitical fault lines are deepening, AI is redefining competitive advantage, and energy systems are straining under the competing pressures of AI-driven demand, security priorities and the climate transition.
While these pose significant risks, they also create opportunities for those who are prepared.
At GIC, we have responded with a sharpened focus on diversification, granularity and agility, enabling us to position the portfolio for uncertainty and for opportunities arising from greater dispersion.
As we mark 45 years of investing for Singapore, our purpose remains unchanged: to preserve and enhance Singapore’s reserves over the long term. This mandate anchors our actions and ensures that the reserves remain a source of stability and strength for generations to come.
The writer is chief executive officer of GIC. This is adapted from his Letter from the CEO, the opening chapter in GIC’s 2025/26 report
