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GIC & The Reserves of Singapore
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.
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 that are 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.
We manage most of the Government’s financial assets, other than its deposits in the Monetary Authority of Singapore (MAS) and stake in Temasek Holdings. GIC is a fund manager, not an owner of the assets. We receive funds from the Government for long-term management, without regard to the sources, e.g. proceeds from securities issued, Government surpluses.
Find out more about Singapore’s reserves management framework.
GIC, along with the Monetary Authority of Singapore (MAS), manages the proceeds from the Special Singapore Government Securities (SSGS) that are issued and guaranteed by the Government, which the 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 for the Government’s assets managed by GIC is the proceeds from SSGS.
The Ministry of Finance has elaborated on this:
GIC manages Singapore’s foreign reserves and does not provide any investment services to the public. We will never contact any member of the public to open a trading account, make a private trade or make a fund transfer for any asset or financial instrument including but not limited to gold, crypto, property, equities, bonds, or commodities.
Learn more about fraud and scam awareness here.
When assessing our performance, our fundamental principle is to ensure that any chosen benchmark reflects the expectations for the portfolio. For example, at the total portfolio level, we assess ourselves against a reasonable rate of return above global inflation. This benchmark represents our mandate to preserve and enhance the purchasing power of the reserves entrusted to us. At the investment professional and team level, we assess ourselves against relevant market benchmarks or absolute return targets. These benchmarks or targets represent the basic opportunity set or expected return of each strategy.
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 GIC Report 2021/22, we announced that our annualised 20-year real rate of return for the year ended 31 March 2022 was 4.2%. In USD nominal terms, we achieved an annualised return of 7%, 6.4% and 7.7% for the 20-year, 10-year and five-year time periods respectively.
Read more in our Investment Report.
The Client has explained why it has instructed GIC to disclose nominal returns only in USD in the GIC Report. The use of USD when showing nominal returns avoids confusion when comparisons are made with other fund managers or global market indices. That is, to avoid confusion that may arise if GIC’s returns in Singapore Dollars were to be compared with the returns of global market indices in USD. However, it is the GIC’s real long-term returns, not its nominal returns, that reflect its mandate and are its key performance measure.
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.
We do not provide one-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 five-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.
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.
Over the last 20 years, GIC has managed to achieve a 3.4% annualised 20-year 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, we implemented a new investment framework to better capitalise on our strengths while clarifying responsibilities of the GIC Board and Management.
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.
Our approach to risk management is multi-pronged:
Our investment framework capitalises on our core strengths:
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:
3. An Active Portfolio, which comprises skill-based strategies, that has a risk limit set by the GIC Board.
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.
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 investments in Asia, but we have no prescribed limit.
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 insights into high-quality investment ideas and research, and industry best practices in both investments and operations.
Read more about our use of external fund managers here.
As a disciplined long-term value investor, we emphasise the fundamental value of an asset. We integrate considerations of environmental, social, and governance issues, alongside other potential drivers of long-term value, in evaluating individual investments. Our investment professionals are well-aware of both the market and reputational risk involved in investing in companies with poor sustainability practices.
UBS and Citi were two major investments GIC made in the early stages of the Global Financial Crisis. It is 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.
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.
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 file all disclosures required by laws and regulations.
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 our investment framework.
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 Fifth Schedule Company, as defined in the constitution of Singapore, the appointment, removal or renewal of members of the GIC Board 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.
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.
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, to enable work without fear or favour.
The Government regularly monitors and reviews the overall long-term performance of and risk profile for the nation’s reserves, managed by GIC, MAS (the central bank), and Temasek Holdings, at various points in a market cycle. Each of the three agencies plays 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; while 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.
Find out more about Singapore’s reserves management framework.
The Ministry of Finance has stated that the investment returns on Singapore’s reserves supplement the annual Budget through the Net Investment Returns Contribution (NIRC). The NIRC is estimated to be S$18.63 billion in Financial Year (FY) 2020. This supports Government investments in transforming Singapore into a vibrant and innovative economy, fostering a caring and cohesive society, and ensuring a fiscally sustainable and secure future.
Find out more about Singapore’s reserves management framework.
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.
Safehouse is an experiential, transmedia game of trade-offs that GIC developed for 15 to 18 year-old students that aims to help them better understand reserves management and long-term investing. It comprises two parts: an online role-playing module and a team-based strategy module.
Safehouse has been rolled out to a variety of secondary schools, ITE, polytechnics and junior colleges (e.g. ACS (I), AJC, Bishan Park Secondary, HCI, ITE College Central, ITE College East, RGS, RI, SCGS, Republic Polytechnic, Singapore Sports School, VJC, Yishun Town Secondary) and has generated great interest.
The GIC Learning Journey is a walkabout tour of GIC’s office at Capital Tower. It spans three stations – History, Contributions, and Investments and includes a short walk through our trading floor. The tour concludes with a Q&A session led by a GIC representative.
The Learning Journey is approximately 2.5 hours long and is best appreciated by participants who are 16 years old and above.
To sign up for Safehouse, please contact us through our Contact Form and we will get back to you shortly.
To sign up for the Learning Journey, please complete this form.
GIC is a place where you can excel, both as a mid-career professional or someone starting out in your career. In fact, our GIC Internship Programme, GIC Scholarship Programme and GIC Professionals Programme will impart comprehensive learning, hands-on experience and mentoring to groom you for your preferred role.
If you’re armed with drive, passion, commitment and seek growth, explore your opportunities at https://careers.gic.com.sg/.
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