Distinguished guests, ladies and gentlemen,
A very good evening to everyone, thank you for joining us for GIC’s 40th anniversary dinner. I am glad to welcome our former and current Board members, advisors and staff, friends in public service, and GIC’s business partners from around the world. You have played an important role in GIC’s growth and achievements. Without your trust and support, GIC would not be where it is today.
In 1981, forty years ago, GIC came into being. It was the brainchild, as you have heard, of Dr Goh Keng Swee, who was then Deputy Prime Minister and Chairman of the Monetary Authority of Singapore. Dr Goh saw the critical need for Singapore to invest its reserves for the long term. He proposed creating a dedicated entity to oversee this. It was a bold idea, ahead of its time. We had no model to emulate. No other non-commodity exporting producer operated a sovereign wealth fund. Mr Lee Kuan Yew, who was then Prime Minister, became GIC’s first chairman. Mr Lee and his colleagues set the strategic direction for GIC. GIC would operate with a commercial mandate, free from political interference. It would embrace meritocracy, and uphold high standards of integrity. It was given a focussed mission: to generate long-term real returns on Singapore’s reserves.
Importance of GIC’s Mission
GIC has come a long way since. It is now one of the best regarded sovereign wealth funds in the world. It has 10 offices in different cities on most continents, and invests in 40 countries and multiple asset classes.
Most importantly, GIC has lived up to its mission. Since inception, it has generated steady returns on our reserves. With annual returns averaging more than 5% above global inflation, and this has significantly grown the international purchasing power of our reserves and GIC has done so while staying well within the risk limits set by the fund owners, the Ministry of Finance.
In achieving its mission, GIC has protected, preserved, and enhanced the value of Singapore’s reserves. This has enabled us to build up a valuable nest egg, to make up for the oil, the gems, the timber and all the other natural resources that we do not have. Our reserves have become a strategic resource for Singapore, and during critical moments, this has made all the difference.
Let me cite three examples.
First, during the 1997 Asian Financial Crisis.
There were runs on many Asian currencies, including the Thai Baht, the Indonesian Rupiah, and the Malaysian Ringgit. Some Western currencies too came under pressure.
But few speculators tried to bet against the Singapore dollar, knowing that it enjoyed the strong backing of our substantial reserves.
There was no loss of confidence in our currency. In fact, the Singapore dollar strengthened against many other currencies.
And this stable position enabled us to press ahead with bold banking reforms in the midst of a raging storm, instead of having to hunker down and wait for the sky to clear.
We gained precious ground on our competitors, and emerged in a much stronger position competitively after the crisis ended.
The second example was the Global Financial Crisis (GFC) a decade later.
Many international financial institutions suffered huge losses, endangering the global financial system.
The loss of confidence was contagious. Some central banks started to issue state guarantees on deposits in their banking systems. Other jurisdictions in the US, in Europe, and Asia, including Hong Kong, felt compelled to match these guarantees. To maintain a level international playing field for our banks, Singapore had no choice but to do the same.
With the backing of our reserves, we were able to earmark SGD 150 billion to guarantee all bank deposits in Singapore. It goes against every central banker’s instinct, but we had to override our instincts and do it. Fortunately, our banking system was sound and well-supervised, and none of the banks and bank branches operating here ran into trouble. There was no need to draw on the guarantee, and the SGD 150 billion stayed intact in our reserves. But the fact that we could give such a strong and credible guarantee helped to maintain confidence in our banking system, and prevent what might otherwise have been a very serious problem for a major financial centre.
While the bank guarantee was not called upon, we did need to tap on the reserves on that occasion, for the first time ever, for our emergency fiscal package.
We made the case to the President, whose approval was needed, and he approved $4.9 billion to be drawn from the reserves to support businesses and workers through schemes like the Jobs Credit to save jobs. The schemes worked. The economy rebounded quickly once the crisis had passed. And we were able to pay back every dollar into the reserves during the same term of government.
The third example, after the GFC, is the ongoing COVID-19 pandemic.
This crisis has been on a different, even larger scale than the GFC. Countries have had to close borders and lock down daily activities, severely affecting economic production last year. This wreaked havoc on economies and on people’s lives everywhere. Many countries, including Singapore, had to implement massive fiscal packages to preserve livelihoods and jobs.
But whereas other countries had to borrow or print huge amounts of money to finance their interventions, Singapore was able to rely on our reserves. We did not need modern monetary theory. We budgeted more than SGD 50 billion for schemes to support businesses and workers. At the same time, we pressed on with longer term programmes. To transform our industries, help companies develop new capabilities, and upskill our workers in growth areas. To position ourselves to emerge stronger into the post-pandemic world.
In these three critical moments – first AFC, then GFC, and then COVID-19 – our reserves have been a bulwark that have seen Singapore through safely.
But in ordinary years too, our reserves play an important role, because they provide a steady stream of income to the government of the day. Up to 50% of investment returns from our reserves contribute to the government’s annual Budget, which equates to about 20% of the government’s annual revenue. Much more than GST or the corporate income tax, our biggest revenue sources, next after the investment returns. This provides the government additional fiscal space to invest in priority areas such as education, healthcare, and infrastructure.
This is why GIC’s mission is such a vital one. If Singapore did not have substantial, well-managed reserves, our situation – whether in crisis or in peace time – would be much more difficult.
Key Success Factors
What factors have contributed to GIC’s success? Let me name four.
First, we set out to create a first-class institution based on meritocratic principles, and we succeeded in building one. It was focused on a clear mission to manage our reserves professionally. It was run by a top-notch GIC team. A strong Singaporean core of highly competent professionals, reinforced and complemented with talent from around the world. And with effective leadership at all levels to set the direction, and take GIC forward.
Second, GIC has adapted responsively to the changing financial landscape. It expanded its geographical coverage as new market opportunities arose. It started out with a largely US and British centric portfolio, GIC stepped up investments in Western Europe and emerging Asia, most significantly in China. It developed new investment capabilities, including in private markets and green assets. In response to secular megatrends like technological disruption, GIC is also investing more in enterprise technology, innovative healthcare, digital services, and logistics.
Thirdly, GIC has approached its investment mandates systematically, with ample thought and caution. It neither adopts a zero-risk mindset, nor does it chase maximum returns heedless of risk. The government sets the risk parameters for GIC, and GIC then designs and manages a portfolio mix of different investment classes to achieve the best possible performance within these limits. It does so through sufficient diversification, risk mitigation, and optimising risk-adjusted returns, and this is how GIC has delivered stable long-term returns, despite great uncertainty and changes in economic and financial conditions.
Finally, GIC is anchored on its core values. Encapsulated by the acronym PRIME - Prudence, Respect, Integrity, Merit and Excellence. These were imbued in the organisation from the very start by its founding chairman, Mr Lee Kuan Yew. GIC is not just a global fund seeking to make returns, but a public institution with a strong sense of national mission and stewardship.
These are factors which are intrinsic to GIC. But just as important to GIC’s success are the political and fiscal conditions within which GIC operates, the context which enables the organisation to function properly.
From day one, the government made it a point to shield GIC from political interference or influence. Having chosen the best people, we put the proper governance structures in place. Clearly separated the roles of the Board and management, and entrusted the management team to make investment decisions objectively and professionally, free from political pressure. On its part, the political leadership stands by GIC and defends GIC’s ability to make investment decisions independently, so long as it has acted properly and competently. And it stands by GIC even when the ex-post outcomes turn out unfavourably, which will happen from time to time for any serious investor.
At the same time, the government’s prudent fiscal stance enables GIC to take a long-term view of investments. The Ministry of Finance, as owner of the funds that GIC invests, has always believed in spending within our means, and balancing the government budget in normal years with a little bit to spare. GIC knows that the government is committed to saving for the future, and will only draw upon the reserves in exceptional circumstances. GIC therefore can rely on the stability of the funds entrusted to it, and confidently invest these funds for the long term. Without having to worry that its funds will be withdrawn frequently and at short notice. This has enabled GIC to build long-term partnerships, and take on calculated risks that only long-term investors can accept, and both of these are key strategic advantages.
Even as GIC celebrates its achievements, it must continue to anticipate and prepare for challenges ahead.
The economic uncertainties are only too apparent, including the impact of prolonged low interest rates and record fiscal deficits. Everyone hopes that governments and central banks can unwind these necessary actions without destabilising markets, but nobody can be sure of this. Inflation, long dormant globally, is stirring again. It may yet prove less transient than the current complacent conventional wisdom holds.
But the biggest uncertainties are not necessarily economic ones. GIC is invested in assets and markets all over the world. The value of these investments depends on functioning global financial markets, and that in turn requires the international system to hold together in good order, and not split apart.
Geopolitics will play a role. Already heightened US-China tensions are affecting global supply chains. Countries are rethinking the unfettered free flow of trade and investments, and putting new emphasis on supply chain security and resilience. This is sensible, but downsides have to be seen too and considered, and if carried to excess, it can easily lead to deep bifurcation of global trade and technology. Beyond that, tensions and rivalry between the powers could cripple markets and investments, even short of full-scale conflict. The virtual summit between President Joe Biden and President Xi Jinping today was therefore an encouraging first step towards stabilising US-China relations, but most of the journey is ahead yet.
Our portfolio is also exposed to other external challenges too, like climate change. In the medium term, the shift towards a greener and lower carbon economy will affect our investment strategy. GIC will seek out new investment opportunities in green technologies which are needed in the transition to a more sustainable world. But in the longer term, if countries’ efforts to decarbonise collectively prove inadequate, environmental deterioration and climate-related disasters will have severe consequences for the global economy, and thus GIC’s portfolio. This is why GIC has developed its own sustainability framework and is watching climate issues very carefully.
Meanwhile, domestic conditions in Singapore are also evolving. Spending on social and healthcare will continue to grow. So will the pressure on the government to draw more from our reserves instead of raising taxes to finance the higher spending.
Every new generation of Singaporeans will ask themselves afresh that same question: do we maintain the same attitude as our forefathers?
That we are stewards of Singapore, with a responsibility for the enduring survival and success of our nation?
That we will look out for the well-being of future generations yet unborn, even as we take proper care of ourselves?
That we will treat the reserves as a rainy-day fund, draw prudently and sustainably on them for present needs, but continue growing our nest egg whenever we can, so that we can pass on to our children and grandchildren a Singapore that is better and more secure than the one that we ourselves inherited?
I hope that they, meaning ourselves, our children, and grandchildren, will reach the same conclusion as Singaporeans have done so far. Retain the formula that has worked so well for GIC, and for Singapore, now for more than half a century. And thus perpetuate our prosperity and our resilience for many years to come.
Our founding leaders were bold in establishing GIC to manage and grow the fund set aside in our reserves. Through our forebears’ frugality and foresight, and GIC’s competence and commitment, we created a strategic resource for Singapore.
GIC must remain bold and build upon this success. It must constantly innovate and refresh itself – its talent, its organisation, its expertise. It must develop new approaches to managing investments, in a more challenging global environment, while staying true to its core purpose and enduring values.
I have every confidence that GIC will rise to the challenge, and continue to deliver on its mission, just as it has done for the last forty years. This is how it will become the leading global long-term investor that it aspires to be.
Happy 40th birthday, GIC!