Since we invest long-term in equity and equity-like assets, the main risks we face are political and economic developments which could impact equity returns.
What is GIC doing to mitigate risk?
Our approach to risk management is multi-pronged:
Managing portfolio investment risk to ensure that risk taken is consistent with our mandate and commensurate with the expected returns;
Managing legal, regulatory and compliance risks to safeguard the reputation and interests of GIC and our Client, and to comply with applicable laws and regulations;
Managing tax risk to ensure compliance with the tax laws of applicable jurisdictions;
Managing operational risk through an effective system of internal controls and processes to support GIC operations;
Managing counterparty credit risks to minimise the impact to GIC if any counterparties were to default;
Managing reputational risk; and
Managing people risk.
What is the relationship between GIC and the government?
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.
Does GIC invest money from the Central Provident Fund (CPF)?
GIC, along with MAS, manages the proceeds from the Special Singapore Government Securities (SSGS) that are issued and guaranteed by the government which CPF board has invested in with the CPF monies. So while the CPF monies are not directly transferred to GIC for management, one of the sources of funds that goes into the government's assets managed by GIC is the proceeds from SSGS.
The Ministry of Finance has elaborated on this:
• Singaporeans’ CPF funds are invested in bonds - SSGS - which are fully guaranteed by the government. CPF monies are therefore invested entirely in risk-free assets. It is the government that takes the investment risk in managing SSGS proceeds.
• Ultimately, the investment returns that the government expects to make over the long term by taking the risks of long-term investments are not hoarded away in the reserves.
• Up to 50% of the net returns from the reserves flow back to Singapore's budget through the Net Investment Returns Contribution (NIRC). The long-term returns therefore help to fund spending which benefit our citizens.
We manage most of the government's financial assets, other than its deposits in Monetary Authority of Singapore (MAS) and stake in Temasek. GIC is a fund manager, not an owner of the assets. It receives funds from the government for long-term management, without regard to the sources, e.g. proceeds from securities issued, government surpluses.
Our investment framework capitalises on our core strengths:
• Our ability to take a long-term investment perspective
• Our global presence
• Our capabilities in cross-asset investment
• Our skilled and experienced team
• A governance structure that distinguishes clearly the respective responsibilities of our board and management
The framework is made up of:
1. A Reference Portfolio made up of 65% global equities and 35% global bonds.
2. A Policy Portfolio with six asset classes:
• Developed market equities
• Emerging market equities
• Nominal bonds and cash
• Inflation-linked bonds
• Private equity
• Real estate
3. An Active Portfolio, which comprises skill-based strategies, that has a risk limit set by the GIC Board.
What are the ways to tell if GIC is meeting its responsibility as the Government’s fund manager?
1. Positive real returns
While nominal returns enable comparisons with other institutional investors, it’s real returns that provide purchasing power. Over 20 years up to 31 March 2017, GIC achieved an annualised real rate of return of 3.7% per year.
According to the MOF, GIC has delivered creditable results on government assets over the long-term. Click here to find out more.
2. Significant and steady Net Investment Returns (NIR)
Significant contributions from NIR show that investment returns more than exceed the costs of government issued bonds and other liabilities, and provide a worthwhile supplement to the budget.
What are the returns of the GIC Portfolio?
Our annual report details our five, 10 and 20-year annualised nominal return, and our rolling 20-year real rate of return. The 20-year real rate of return reflects the government’s investment mandate, requiring GIC to invest for the long term, while the five and 10-year results provide intermediate indications of ongoing performance.
In our 2016/2017 annual report, we announced the annualised 20-year real rate of return for the year ended 31 March 2017 was 3.7%. In USD nominal terms, GIC achieved an annualised return of 5.7%, 4.3% and 5.1% for the 20-year, 10-year and five-year time periods respectively.
Why doesn't GIC disclose its returns in Singapore dollars?
The Client has explained why it has instructed GIC to disclose nominal returns only in US$ in the GIC Report. The use of US dollars when showing nominal returns avoids confusion when comparisons are made with other fund managers or global market indices. This is to avoid confusion by the readers of the report to compare GIC’s returns in Singapore dollars with the returns of global market indices in US dollars. However, it is the GIC’s real long-term returns, not its nominal returns, that reflect its mandate and are its key performance measure.
What is the performance of the various asset classes?
We measure the performance of asset classes against public indices such as MSCI and Barclays, where available. For investments that are not traded publicly, we use fair value as our measure, ensuring measurements are market standard by means such as external appraisals and valuations.
Why doesn’t GIC provide one-year returns?
We do not provide 1-year returns as these are too short-term in relation to GIC's 20-year investment horizon. As 20 years is a rather long period, we have published 5-year and 10-year nominal rates of returns in USD terms to reflect the ongoing medium-term investment performance of the portfolio, but not the real rates of return.
How is GIC positioning itself for the future?
Over the last 20 years, GIC has managed to achieve a 3.7% annual return above global inflation, while navigating major market declines like the Dot-Com Crash, as well as the Global Financial Crisis. We have made good use of our natural advantages of size, scope and long-term investment orientation.
On 1 April 2013, GIC implemented a new investment framework to better capitalise on our strengths while clarifying responsibilities of the GIC Board and management.
We evaluate our performance in three ways: whether we achieve a reasonable rate of return above global inflation; how each investment professional or team performs against market benchmarks or absolute return targets; and how our managers’ results compare with those of industry peers.
Why are returns expressed in real terms?
The emphasis on real returns is important because the government requires us to preserve and enhance the international purchasing power of Singapore’s foreign reserves. Nominal returns enable performance comparisons with other institutional investors, but it is real returns which indicate whether we are meeting our remit from the government.
Do the 5- and 10-year results impact the long-term sustainability of GIC?
Our five and 10-year reports are designed to offer an interim measure of our ongoing performance, but it is the 20-year returns that show whether or not we are meeting the objectives set by our client, the government.
Why does GIC not disclose the size of its assets under management?
The Government has explained that revealing the assets under management of GIC will, taken together with the published assets of MAS and Temasek, amount to publishing the full size of Singapore’s financial reserves. In addition, it is not in the national interest to publish the full size of the reserves for it will make it easier for markets to mount speculative attacks on the Singapore dollar during periods of vulnerability.
Is the government involved in the investment decisions of GIC?
The government is not involved in GIC’s investment decisions. The board assumes ultimate responsibility for asset allocation and the performance of the portfolio. Management executes investment strategies and is responsible for all investment transactions.
This chart summarises the responsibilities of the parties involved in the investment framework:
What sort of information does GIC make publicly available?
We disclose information on our returns over five, 10 and 20-year time periods, risk levels, and asset and geographical distributions each year in the GIC Report.
We do not report on investment specifics, to safeguard our competitive edge. We are in any case assessed not on individual investments but on the performance of the overall portfolio.
We of course file all disclosures required by laws and regulations.
How are members of the board of directors appointed?
GIC is a private limited company wholly owned by the government. The Ministry of Finance, representing the government, ensures that a competent board of directors is in place; GIC helps by suggesting qualified candidates.
As a 5th Schedule Company, as defined in the constitution of Singapore, the appointment, removal or renewal of GIC’s board members requires the approval of the President of Singapore. Such approval will be preceded by advice from the Council of Presidential Advisers (CPA), following their scrutiny of any proposals, with final approval resting solely with the President.
Do GIC Directors get paid fees, such as the Chairman?
Cabinet Ministers and GIC executives on the GIC Board are not paid fees. We pay fees to directors from the private sector. The payment of director fees is as per industry practice and the amounts are reviewed regularly and take the market context into consideration.
Who audits the financial statements of GIC?
The main companies in the GIC group and the government's portfolio are audited by the Auditor-General. The Auditor-General is appointed by the President, and his/her position is safeguarded under the constitution and the Audit Act. This enables him/her to work without fear or favour.
What is the difference between GIC and the other two entities that invest Singapore’s reserves?
The Government regularly monitors and reviews the overall long-term performance and risk profile for the nation's reserves, managed by GIC, MAS (the central bank) and Temasek, at various points in a market cycle. Each of the three agencies play a distinct role and consequently, has its place in the risk spectrum as part of the larger strategy for diversification.
MAS and Temasek are at the opposite ends of the risk spectrum - MAS is the most conservative of the three investment entities, with a significant proportion of its portfolio invested in liquid financial market instruments; and Temasek aims to maximise shareholder value over the long term.
GIC is a fairly conservative investor, with a globally diversified portfolio spread across various asset classes. Most of our investments are in the public markets, with a smaller component in alternative investments such as private equity and real estate. Temasek is exposed to significantly higher risk than GIC and MAS but has also delivered higher returns over time as expected. In contrast, MAS will have more stable but lower returns over time.
The Ministry of Finance has stated that the Government is able to take in money from the investment returns of Singapore’s reserves to supplement the Budget on a sustained basis, in keeping with the provisions in the Constitution. The investment returns of our reserves supplement the annual Budget through the Net Investment Returns Contribution (NIRC). The expected FY17/18 NIRC is S$14.11b – around 17% of total annual government revenues.
Attempts have been made online to estimate GIC’s size, based on budget surpluses and the issuance of government securities. Are the calculations accurate?
The government had responded in 2012, citing a number of errors:
First, they assume that the government’s available funds flow only to GIC, whereas in fact, as of 31 March 2012, the government had S$147 billion deposited with MAS, compared to MAS’ Official Foreign Reserves (OFR) valued at S$305 billion. A significant proportion of MAS’ portfolio consists of liquid financial market instruments; consequently it earns a lower rate of return than GIC.
Second, estimates often ignore debt servicing costs, resulting in an over-estimate of the assets accumulated through investing proceeds from the issuance of government securities, especially over the long-term. For more information on the government’s debt position, please refer to the Ministry of Finance website.
Third, they overestimate the flow of funds into GIC by including the interest and dividend income the government gets on its investments, assuming the full amount of government budget surpluses as fresh fund injections, failing to subtract the interest and dividend income portion.
Given its mandate, what sort of employees is GIC looking for?
Our employees must embody our five PRIME values: Prudence, Respect, Integrity, Merit and Excellence.
All employees must also be committed to the values embodied in The GIC Way, which define and differentiate us in the marketplace, and focus on the people we work for, those we work with, and the future we share.
• Clients First - When our clients do well, we do well
We look for people with a desire to excel and never stop learning. The way we operate requires our people to enjoy and be good at working with others. We value diversity, and recruit from a range of academic backgrounds, including economics, engineering, arts, mathematics, computer science and law.
What is GIC's staff strength?
We have more than 1,400 employees working from our 10 offices around the globe.
Can non-Singaporeans work for GIC?
Our people span more than 30 nationalities. More than half of our investment professionals are non-Singaporeans.
How should I apply and when?
For programmes such as scholarships, internships and the GIC Professionals Programme (GPP), you will need to complete an online application form; check online for deadlines.
For scholarships and the GIC Professionals Programme, what’s the selection process like? How many rounds of interview are there?
You’ll undertake a series of tests and interviews, and get a chance to meet up with potential GIC colleagues to learn more about the organisation. You may meet us around five or six times (for scholarships) or two or three times (for GPP), which includes interviews and assessment tests.
Shortlisted candidates will be contacted for an interview a few weeks after submission or after the relevant deadline has passed.
Does GIC offer internships?
Yes. We invite undergraduates in their penultimate year of studies to apply to this programme, which runs for about 8 to 10 weeks during the June to August period every year. The selection process is similar to the scholarship and the GIC Professionals Programme.
Internships generally take place in the country where participants are studying or in their home country, if GIC has an office there. Other arrangements are considered case-by-case.
How many scholarships are awarded each year? How many positions are there for the GIC Professionals and Internship programmes? Is there a quota?
We do not have fixed quotas. We take as many good candidates as we find and can place.
When can I expect to hear back regarding the status of my application?
Shortlisted candidates will be contacted for an interview within a few weeks of their submission, or after the relevant deadline has passed (for scholarships, internships and GPP).
How much of the portfolio is managed externally by other fund managers?
Our use of external fund managers varies greatly from asset class to asset class. For public markets, external managers have at times been responsible for as much as 20% of the portfolio.
Using external managers diversifies the government’s portfolio, expands the range of investment opportunities available, and helps us deepen our understanding of financial markets. We also look to such managers to outperform benchmark indices, taking an active investment approach and accepting higher levels of risk in search of higher rates of return.
Most of the external managers we use have been investing for us for many years, in partnerships that have not only generated above average investment returns, but also given us insight into high-quality investment ideas and research, and industry best practice in both investments and operations.
Read more about our use of external fund managers here and here.
How does GIC decide what to invest in, and where?
The GIC Board approves the Policy Portfolio which specifies the allocation of funds to eligible asset classes. The aim is to optimise distribution of investment funds to the asset classes. The GIC Board also provides the management latitude to adopt active investment strategies aimed at adding value to the Policy Portfolio. These active strategies are limited by a risk budget set by the GIC Board.
Does GIC have specific allocations to asset classes and geographies?
We focus on underlying risk/return attributes and long-term overall portfolio performance rather than the short-term performance of individual asset classes or investments. We also do not have specific country allocations. We look at each investment and assess the return after adjusting for the risk. One would expect that over time, GIC would have more investment in Asia but we have no prescribed limit.
Can GIC share more on the investments in UBS and Citi?
UBS and Citi were two major investments GIC made in the early stages of the Global Financial Crisis. It’s a matter of record that our Citi investment has generated a realised profit of US$1.6 billion. As for UBS, we reduced our stake to 2.7% on 16 May 2017. The UBS investment resulted in a loss, but the Citigroup investment has earned a positive return. The combined return on the UBS and Citigroup investments has been positive in mark-to-market terms.