The GIC Portfolio is designed to provide sustainable risk-adjusted returns over the long -term. We remain cautious and are constantly monitoring and re-evaluating our long-term outlook, especially given higher uncertainty and risk expected over the next few years.
We manage risk by maintaining a diversified, high-quality portfolio and by keeping a constant lookout for potential downsides. Having identified potential downsides, we formulate ways to mitigate them in order to protect portfolio. For example, our investment professionals perform in-depth analysis to identify potential economic and financial dislocations and their potential impact, through macroeconomic analysis and scenario planning exercises. Risk can never be entirely removed from investing but we understand how to assess and manage the risk in our investments, so that we can turn it to our advantage.
GIC is a private company wholly owned by the Government of Singapore. We do not own the assets we manage and are paid a fee as the fund manager looking after Singapore’s foreign reserves assigned to our care.
The Government, which is represented by the Ministry of Finance in its dealings with GIC, neither directs nor interferes in the company's investment decisions. It holds the board accountable for the overall portfolio performance. Although we are government-owned and manage Singapore’s reserves, our relationship with the government is that of a fund manager to a client. We operate, invest and measure our performance in the same way as any global fund management company.
The short answer is that GIC manages the Government’s reserves, but as to how the funds from CPF monies flow into reserves which could then be managed by either MAS, GIC or Temasek, this is not made explicit to us. What we do know from public sources: Singaporeans’ CPF funds are invested in bonds called Special Singapore Government Securities (SSGS) which are fully guaranteed by the Government. These are non-marketable floating rate bonds issued specifically to the CPF Board. These bonds earn for the CPF Board a coupon rate that is pegged to CPF interest rates that members receive. Under the Protection of Reserves Framework in the Singapore Constitution of the Republic of Singapore, the Singapore Government cannot spend any monies raised from Government borrowings. All the proceeds from the Government’s borrowing are therefore invested.
The Government's financial assets, other than its deposits with the Monetary Authority of Singapore (MAS) and its stake in Temasek Holdings, are mainly managed by the GIC. Sustained balance of payments surpluses and accumulated national savings are the fundamental sources of the Singapore Government's funds.
GIC’s investment framework capitalises on our core strengths:
- the ability to take a long-term investment perspective;
- a global presence;
- capabilities to invest in cross-asset opportunities; and
- a skilled and experienced talent team
- and a governance structure that distinguishes clearly the responsibilities of the GIC Board and management
The framework is made up of:
- a Reference Portfolio comprising 65% global equities and 35% global bonds (“65:35”)
- a Policy Portfolio which comprises six asset classes:
- developed market equities
- emerging market equities
- nominal bonds and cash
- inflation-linked bonds
- private equity
- real estate
- an Active Portfolio that the GIC management is allowed to deviate from the Policy Portfolio and add value through active, skill-based strategies.
1. There are positive real returns
Nominal returns might be useful for comparing GIC’s returns to other institutional investors. But achieving a good real return ensures Singapore’s international purchasing power stays strong. GIC achieved a real return of 4.0% for the 20-year period ending 31 March 2013.
2. Net investment Returns (NIR) contributions are significant and steady
If there are significant contributions to the Budget from NIR, then we know that the investment returns on the government’s assets are more than sufficient to cover the costs of government issued bonds and other liabilities. Plus, the net assets have produced significant enough returns to supplement the Budget.