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Singapore. Singapore’s GIC, the world’s fourth-biggest sovereign wealth fund, is ready to use its bigger cash pile to buy into emerging markets and alternative investments such as real estate and natural resources, but warned that bonds may not be safe due to inflation risks.

The strategy of the Government of Singapore Investment Corporation, the larger of the city-state’s two wealth funds with an estimated $200 billion or more, appears to be evolving as it cut its equity and bond holdings to increase its exposure to alternatives like property and resources.

Sovereign funds were badly hit by the meltdown in global financial markets after bold investments in Western banks, and GIC fared worse than its new Chinese rival CIC, but outperformed fellow Singapore fund Temasek.

“The government is not going to be overly upset with one year of slippage in performance,” said David Cohen, director of Asian economic forecasting at Action Economics.

“They will maintain their diversified portfolio. Any change in assets will be on the margins.”

GIC’s portfolio shrank by more than a fifth in the year to end-March, but has recouped over half its losses since then. It pared its equities exposure before the crisis and then profited from a well timed sale of part of its Citigroup holding. The Singapore fund’s second annual report showed it held 8 percent cash as of end-March, up from 7 percent a year earlier, and it appears keen to put the money to use soon.

“In normal circumstances, we should not be holding cash, particularly now when cash earns you close to zero interest,” the fund’s chief investment officer Ng Kok Song said.

Ng, who said the fund held up to 10 percent cash at one point, warned of rising inflation as Western governments and central banks faced constraints in an era of high unemployment that may prevent them from unwinding billions in stimulus measures.

Mike Kerley, a fund manager at Henderson Global Investors, said the jury was still out on prospects for bonds and inflation, but agreed emerging Asia offered better growth prospects.

“The worst-case scenario would be deflation in the West and inflation in emerging markets,” Kerley said.

GIC’s 2008-09 performance and subsequent recovery resemble that of Temasek, which said earlier this month its portfolio slumped 55 billion Singapore dollars ($39 billion), or by about 30 percent, to March before recouping most of its losses.

Both wealth funds unusually gave more recent performance figures, a move to gain more favorable publicity after coming under fire from Singaporeans worried about the nation’s savings. GIC manages Singapore’s foreign currency reserves.

Reuters