After a tumultuous 2008, when the market environment was one of the most difficult faced by investors in the last 50 years, the global economy rebounded in 2009. Governments and central banks launched unprecedented fiscal stimuli and quantitative easing in their efforts to stabilise the global banking system and forestall a repeat of the Great Depression of the 1930s. Fortunately, these measures worked. GIC started to selectively take on more risk from the second quarter of 2009, amidst growing confidence in the economic recovery.

While the global economy is experiencing a rebound, the recovery path beyond this year is subject to significant uncertainties. It is unclear what impact deleveraging will have on growth once policy stimulus is withdrawn. Sovereign risks have increased, most evidently in Europe, and asset price bubbles could be threats in emerging markets. Slow growth in the developed world would likely keep unemployment high, increasing the risk of a backlash against trade and globalisation. The financial landscape has become more volatile, with more uncertainty and tail risk.

In anticipation of a shifting financial landscape, GIC instituted a considered process to harness our capabilities across the company and operate more effectively on an integrated basis. We also completed a comprehensive review of GIC’s investment policy examining all aspects of our investment process, and are making several changes in the policy parameters, asset class return, risk assumptions, and target policy mix.

GIC contributed to drafting the Santiago Principles, a set of Generally Accepted Principles and Practices for Sovereign Wealth Funds. Singapore continues to participate in the International Forum of Sovereign Wealth Funds. There is a risk that the developed world will swing towards protectionism, which will place restrictions that distort the free flow of investments across borders. We welcome the multilateral efforts by the IMF and the OECD, and will continue to collaborate with them, recipient countries and other bodies in ensuring the free flow of long-term investment capital.

Today, the idea of a sovereign wealth fund seems natural, but the focus on reserve management was rare in the 1980s when GIC was established. On 14 May 2010, we mourned the passing of our founding Board member Dr Goh Keng Swee, GIC’s first Deputy Chairman from 1981 to 1994. Dr Goh was pivotal to the founding of GIC. We are grateful for his far-sightedness and fortitude, which laid the foundation for the development of GIC as steward of Singapore’s foreign reserves. Dr Goh’s firm belief in the need to protect and grow the hard-earned wealth of Singaporeans continues to guide the GIC community in our operations.

In January 2010, Mr Hsieh Fu Hua resigned from the GIC Board of Directors, and stepped down from the Board Investment and Remuneration Committees. On behalf of GIC, I would like to convey our heartfelt appreciation to Mr Hsieh for his invaluable contributions during his period of office.

The last two years have been most challenging and difficult. I would like to express my deep gratitude to our committed staff whose hard work and dedication have enabled GIC to deliver good sustainable returns and achieve the Government’s investment objectives over the long term. I also wish to thank our counterparties and business partners for their continued support amidst a changing financial landscape. I am confident that, with vigilance and foresight, GIC will continue to achieve superior and sustainable performance in the coming years.

Dr Tony Tan Keng Yam
Deputy Chairman & Executive Director
September 2010