SINGAPORE: In trying to lower risks, Singapore’s sovereign wealth fund GIC ended up missing out on some investment returns in recent years, Senior Minister of State for Finance Jeffrey Siow said in parliament on Monday (Jan 12).
But he said the decision to de-risk was a “matter of judgment”, and that the fund has met the government’s expectations.
Addressing several parliamentary and supplementary questions on GIC’s investment performance, Mr Siow said the fund expected increased market volatility and saw that valuations were heightened, so it took pre-emptive measures to moderate its risk exposure.
The measures, which were taken in recent years, were intended to keep the portfolio risks within acceptable limits, and to guard against the possibility of “significant asset impairment” if markets fell sharply.
“But as equity markets have continued to remain elevated, these prudent de-risking measures resulted in some foregone returns,” said Mr Siow.
GIC’s annual return has lagged behind its reference portfolio by 0.5 and 1.3 percentage points over 20 and 10 years, respectively, the Financial Times reported in December.
The fund’s reference portfolio comprises 65 per cent global equities and 35 per cent global bonds.
Over five years, FT said the GIC portfolio lags its reference by 3.1 percentage points.
In response to a question from Associate Professor Jamus Lim (WP-Sengkang) about whether the Ministry of Finance plans to address the lower returns generated by GIC compared with its reference portfolio, Mr Siow said the reference portfolio is not a performance benchmark.
Instead it is an expression of the overall risk that the government would like GIC to take, and there will be periods where GIC takes less risk than the reference portfolio, he said.
“Should GIC not have de-risked and ridden through the drawdowns? I think that is a matter of judgment,” said Mr Siow, noting that GIC has to balance its mandate with the need to preserve Singapore’s capital assets.
“(In) hindsight, we can always make all sorts of assertions, but they have taken that decision to de-risk and preserve our capital and still be able to make the returns that we expect of them.”
Mr Siow said GIC’s team has demonstrated over the years that it is able to make active decisions to manage assets and generate high returns.
“I think we have to leave the professionals to do the work that they do,” he said.
The government works with GIC’s board to make sure it fulfils its mandate, and is focused on the fund’s long-term investment performance rather than year-to-year fluctuations, he added.
“We think they have met the expectations in this regard,” said Mr Siow.
31:09 Min
The government’s assessment is that the returns generated by GIC and Temasek are reasonable and within expectations, given their mandates and risk profiles. The government will continue to review their mandates and performance regularly, in line with changes in the global economic investment landscape. Senior Minister of State for Finance Jeffrey Siow said this in reply to MPs’ questions in parliament on Monday (Jan 12). He pointed out that the government assesses their performance primarily against their respective mandates and risk profiles - not with other funds. GIC has achieved a real return of 3.8 per cent per annum over the past 20 years. Temasek has over the last 20-year period reported a total shareholder return of 8 per cent per annum in US dollar terms.
Several Members of Parliament also raised questions about the performance of Temasek and its recent restructuring.
In July last year, the state investor said its net portfolio value increased by 11.6 per cent from a year before to hit a record high of S$434 billion, which was equivalent to US$324 billion as of Mar 31.
Amid geopolitical uncertainty, Temasek said it had been “actively rebalancing” its portfolio and strengthening resilience.
Mr Siow said that Temasek operates as an active, bottom-up investor that invests directly in companies where it sees long-term growth potential. Compared with GIC, Temasek operates at the higher end of the risk spectrum, he said.
“In recent years, Temasek’s performance was affected by the performance of the Chinese market, although this was mitigated by higher returns from its growing investments in Europe and in the (United States),” he said.
Nonetheless, over the last 20-year period, Temasek has reported a total shareholder return of 8 per cent per annum in US dollar terms, he added.
Taken as a whole, the government has assessed that the returns generated by GIC and Temasek are “reasonable and within expectations”, given their mandates and risk profiles, Mr Siow said.
12:49 Min
As Temasek expands its investment activities across new geographies and sectors, it may need to adjust its organisational structure to sharpen its focus and better achieve its objectives. Temasek has publicly explained the rationale for its latest restructuring. These are matters for its board to determine and the government does not intervene in such decisions. Ultimately, the government holds the board of Temasek accountable for delivering good long-term returns on its overall portfolio - on the basis of net portfolio performance after deducting all investment fees and expenses. Senior Minister of State for Finance Jeffrey Siow said this in reply to MPs’ questions in parliament on Monday (Jan 12).
Mr Ng Shi Xuan (PAP-Sembawang) asked a supplementary question on what levers the government has in the event that the long-term performance of Temasek is deemed unsatisfactory.
In response, Mr Siow said that as an active investor, volatility in the markets is expected. Over a long period, these volatilities and fluctuations should even out, he said.
“As long as they make what we require of them – which is something that is sustainable, that’s something that is in line with their risk profile… I think we should be able to accept that these are within our expectations and that they are delivering what they have been set out to do,” he said.
Assoc Prof Lim pointed out that Temasek’s long-term investment returns are comparable to those of global benchmarks, despite Temasek’s holdings in private assets, which are expected to generate higher returns.
He asked whether directing dividends from privately held assets toward public assets might be a possible strategy to maximise returns.
Mr Siow said that the government will continue to engage Temasek to develop and build a diversified portfolio that reduces volatility and outperforms a broad-based market index.
The government will not go into exactly how the dividends are spent and the proportion of listed or unlisted assets they should manage, he added.
“That’s something for the Temasek management to decide, and we will not interfere in those decisions,” he said.
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But he said the decision to de-risk was a “matter of judgment”, and that the fund has met the government’s expectations.
Addressing several parliamentary and supplementary questions on GIC’s investment performance, Mr Siow said the fund expected increased market volatility and saw that valuations were heightened, so it took pre-emptive measures to moderate its risk exposure.
The measures, which were taken in recent years, were intended to keep the portfolio risks within acceptable limits, and to guard against the possibility of “significant asset impairment” if markets fell sharply.
“But as equity markets have continued to remain elevated, these prudent de-risking measures resulted in some foregone returns,” said Mr Siow.
GIC’s annual return has lagged behind its reference portfolio by 0.5 and 1.3 percentage points over 20 and 10 years, respectively, the Financial Times reported in December.
The fund’s reference portfolio comprises 65 per cent global equities and 35 per cent global bonds.
Over five years, FT said the GIC portfolio lags its reference by 3.1 percentage points.
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In response to a question from Associate Professor Jamus Lim (WP-Sengkang) about whether the Ministry of Finance plans to address the lower returns generated by GIC compared with its reference portfolio, Mr Siow said the reference portfolio is not a performance benchmark.
Instead it is an expression of the overall risk that the government would like GIC to take, and there will be periods where GIC takes less risk than the reference portfolio, he said.
“Should GIC not have de-risked and ridden through the drawdowns? I think that is a matter of judgment,” said Mr Siow, noting that GIC has to balance its mandate with the need to preserve Singapore’s capital assets.
“(In) hindsight, we can always make all sorts of assertions, but they have taken that decision to de-risk and preserve our capital and still be able to make the returns that we expect of them.”
Mr Siow said GIC’s team has demonstrated over the years that it is able to make active decisions to manage assets and generate high returns.
“I think we have to leave the professionals to do the work that they do,” he said.
The government works with GIC’s board to make sure it fulfils its mandate, and is focused on the fund’s long-term investment performance rather than year-to-year fluctuations, he added.
“We think they have met the expectations in this regard,” said Mr Siow.
31:09 Min
The government’s assessment is that the returns generated by GIC and Temasek are reasonable and within expectations, given their mandates and risk profiles. The government will continue to review their mandates and performance regularly, in line with changes in the global economic investment landscape. Senior Minister of State for Finance Jeffrey Siow said this in reply to MPs’ questions in parliament on Monday (Jan 12). He pointed out that the government assesses their performance primarily against their respective mandates and risk profiles - not with other funds. GIC has achieved a real return of 3.8 per cent per annum over the past 20 years. Temasek has over the last 20-year period reported a total shareholder return of 8 per cent per annum in US dollar terms.
TEMASEK’S PERFORMANCE
Several Members of Parliament also raised questions about the performance of Temasek and its recent restructuring.
In July last year, the state investor said its net portfolio value increased by 11.6 per cent from a year before to hit a record high of S$434 billion, which was equivalent to US$324 billion as of Mar 31.
Amid geopolitical uncertainty, Temasek said it had been “actively rebalancing” its portfolio and strengthening resilience.
Mr Siow said that Temasek operates as an active, bottom-up investor that invests directly in companies where it sees long-term growth potential. Compared with GIC, Temasek operates at the higher end of the risk spectrum, he said.
“In recent years, Temasek’s performance was affected by the performance of the Chinese market, although this was mitigated by higher returns from its growing investments in Europe and in the (United States),” he said.
Nonetheless, over the last 20-year period, Temasek has reported a total shareholder return of 8 per cent per annum in US dollar terms, he added.
Taken as a whole, the government has assessed that the returns generated by GIC and Temasek are “reasonable and within expectations”, given their mandates and risk profiles, Mr Siow said.
12:49 Min
As Temasek expands its investment activities across new geographies and sectors, it may need to adjust its organisational structure to sharpen its focus and better achieve its objectives. Temasek has publicly explained the rationale for its latest restructuring. These are matters for its board to determine and the government does not intervene in such decisions. Ultimately, the government holds the board of Temasek accountable for delivering good long-term returns on its overall portfolio - on the basis of net portfolio performance after deducting all investment fees and expenses. Senior Minister of State for Finance Jeffrey Siow said this in reply to MPs’ questions in parliament on Monday (Jan 12).
Mr Ng Shi Xuan (PAP-Sembawang) asked a supplementary question on what levers the government has in the event that the long-term performance of Temasek is deemed unsatisfactory.
In response, Mr Siow said that as an active investor, volatility in the markets is expected. Over a long period, these volatilities and fluctuations should even out, he said.
“As long as they make what we require of them – which is something that is sustainable, that’s something that is in line with their risk profile… I think we should be able to accept that these are within our expectations and that they are delivering what they have been set out to do,” he said.
Assoc Prof Lim pointed out that Temasek’s long-term investment returns are comparable to those of global benchmarks, despite Temasek’s holdings in private assets, which are expected to generate higher returns.
He asked whether directing dividends from privately held assets toward public assets might be a possible strategy to maximise returns.
Mr Siow said that the government will continue to engage Temasek to develop and build a diversified portfolio that reduces volatility and outperforms a broad-based market index.
The government will not go into exactly how the dividends are spent and the proportion of listed or unlisted assets they should manage, he added.
“That’s something for the Temasek management to decide, and we will not interfere in those decisions,” he said.
Related:
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