GIC Private Limited

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GIC
Sovereign wealth fund
Industry Fund Management
Founded 22 May 1981
Headquarters Singapore
Key people
Lee Hsien Loong, Chairman
Lim Siong Guan, Group President
Lim Chow Kiat, Group Chief Investment Officer
Products N/A
Revenue N/A
Website GIC

GIC Private Limited, formerly known as Government of Singapore Investment Corporation, is a sovereign wealth fund established by the Government of Singapore in 1981 to manage Singapore's foreign reserves. Its mission is to preserve and enhance the international purchasing power of the reserves, with the aim to achieve good long-term returns above global inflation over the investment time horizon of 20 years. With a network of nine offices in key financial capitals around the world, GIC invests internationally in equities, fixed income, money-market instruments, real estate and special investments.

GIC is one of a few global firms with the highest corporate credit ratings by both Standard & Poor's and Moody's, of AAA and Aaa respectively. Its investment portfolio is managed by its three subsidiaries: GIC Asset Management Pte Ltd (public markets), GIC Real Estate Pte Ltd and GIC Special Investments Pte Ltd (private-equity investments). In 2008, The Economist reported that Morgan Stanley had estimated the fund's assets at US$330 billion.[1]

In addition to GIC, the Government of Singapore owns another sovereign wealth fund, Temasek Holdings, which manages about US$173 billion of assets.[2]

History[edit]

On 22 May 1981, Goh Keng Swee, then first Deputy Prime Minister and Chairman of the Monetary Authority of Singapore, saw the trend of Singapore's rapidly growing foreign reserves and decided to invest Singapore's reserves for the future of the nation and the welfare of its people. He was advised by a foreign merchant bank, N M Rothschild & Sons, and established the GIC.[3]

The government then embarked on a change in investment policy by investing the bulk of its foreign reserves in longer-term, high-yielding assets rather than in liquid but low-yielding assets.[4]

An undisclosed number of those who left the MAS in 1981 went to work for the new GIC. In the late 1990s, four of its most senior positions were held by former Monetary Authority of Singapore officers.

Investments[edit]

Traditionally, GIC has kept a low profile in its investments.[5] During the subprime mortgage crisis of 2007–2010, however, a number of its investments attracted controversy. In 2013, according to the Sovereign Wealth Fund Institute, the GIC was one of the most active SWF investors for the year.[6]

In 2006, at the height of the US real estate bubble, it made a US$200 million investment in the equity of Stuyvesant Town—Peter Cooper Village, the largest apartment complex in Manhattan (as well as US$575 million in secondary loans). The management of the complex, Tishman Speyer Properties and BlackRock Realty, defaulted on their loan in 2010, effectively wiping out the investment.[7][8]

In late 2007, during the first phase of the crisis, GIC invested $11 billion Swiss francs for a 7.9% stake in the Swiss bank UBS. The loans were converted into equity in 2010, with an estimated 70% loss of value, though partially offset by a 9% fixed coupon.[9][10] GIC had acknowledge that the timing for the investment could have been better. It also stated that other investments made at that time have had positive returns which offset the losses on UBS. GIC's total portfolio has fully recovered to its value prior to the global financial crisis.[11]

In 2008, GIC invested US$6.88 billion for a 9% stake in Citigroup.[12] In 2009, it pared its stake to less than 5%, realizing a $1.6 billion profit, with another $1.6 billion paper profit on its remaining holding.[13]

In 2009, Government of Singapore Investment Corp. suffered a loss of about 59 billion Singapore dollars (US$41.60 billion) in the fiscal year ended 31 March 2009. In its report, GIC said that for the 20 years ended 31 March, 2009, it had an annualized 5.7% return in U.S. dollar terms, while for the two decades that ended March 31, 2008, the annualized return was 7.8%. As of end-March this year, its nominal return over 20 years in Singapore dollar terms was 4.4%, compared with 5.8% at the end of March 2008. "Like many large institutional investors, GIC's portfolio had been impacted in the severe global downturn of 2008," said Tony Tan, GIC's deputy chairman.

As of 31 March 2009, the fund had 38% of its portfolio invested in equities, down from 44% a year earlier, while exposure to fixed income such as bonds was 24%, compared with 26%. About 30% of GIC's portfolio was invested in real estate, private equity, venture capital and infrastructure assets, from 23% a year earlier. By geography, the Americas accounted for 45% of GIC's portofolio at the end of the latest fiscal year, compared with 40% at March 31, 2008, while the fund's exposure to Europe was cut to 29% from 35%. Asia accounted for 24% of the portfolio, from 23% in 2008.[14]

As of 2013, GIC holds around 44% of its portfolio in North and South America, 25% in Europe and 28% in Asia.[15]

On July 30, 2013, Singapore’s GIC was part of a consortium to acquire Transport et Infrastructures Gaz France (TIGF) which is Total’s gas transportation and storage business for an enterprise value of €2.4 billion (US$3.25 billion). The consortium includes Snam (45%) an Italian gas storage and transport operator, Singapore’s GIC (35%) and EDF (20%).[16]

GIC has the ability to invest across a full spectrum of financial assets, from sovereign debt to infrastructure, and manages approximately 80 per cent of its portfolio in-house.[17]

Performance[edit]

In 2008, GIC published for the first time a report containing information on its 20-year returns and more information on how it is managed and governed, and how it invests Singapore's foreign reserves.

GIC does not disclose the amount of funds it manages and its annual profit and loss. Revealing the exact amount would expose the full size of Singapore's financial reserves and make it easier for speculators to attack the Singapore dollar during periods of vulnerability.[18]

Since 2011, GIC had also published the 5-year and 10-year nominal rates of return to provide a sense of the ongoing medium-term investment performance, even while GIC maintains its sights on the long term. It included two composite portfolios and volatility statistics to reflect the level of portfolio risk and to offer perspective in reading the 5-year and 10-year figures.

For the year ended 31 March 2013, its annualised 20-year real rate of return was 4.0%. In USD nominal terms, GIC achieved an annualised return of 2.6%, 8.8% and 6.5% for 5-year, 10-year and 20-year time periods respectively.[19]

Governance and risk management[edit]

The funds managed by GIC are owned by the Singapore Government. Its investment returns supplement the country’s annual budget in areas such as education, R&D, health care and physical environment.[20]

As a Fifth Schedule company under the Singapore Constitution, GIC is accountable in various key areas to the President of Singapore who is empowered under the constitution to obtain information to enable him to safeguard the country's reserves. The Auditor-General, who is appointed by the President of Singapore, submits an annual report to the President and Parliament on his audit of the Government and other bodies managing public funds.[21]

GIC manages risk by investing in a well-diversified portfolio, with a balanced distribution of asset classes and their underlying business sectors and geographies. This, too, is why GIC's performance has to be measured on the basis of its overall portfolio rather than by how much it makes or loses on individual investments.[22] Its approach to “risk management” has three distinct components: portfolio risk; process risk and people risk.[23]

As a member of the International Working Group of SWFs that developed the Santiago Principles in October 2008, GIC publishes how it adopts and implements the voluntary set of principles and practices.[24]

New Investment Framework[edit]

GIC implemented a new investment framework in 2013 which will give it more flexibility to focus on "investments that may be riskier in the short term but would generate returns in the long-term."[25]

The new framework defines more clearly GIC's risk and return drivers, its long-term investment objectives, and the responsibilities of the GIC board and management.[26]

The new approach sees its portfolio structured under three drivers.

Firstly, a ‘Reference Portfolio’ which comprises 65 per cent of global equities and 35 per cent global bonds represents global markets. It characterises the risk that the Government is prepared for GIC to take in its long-term investment strategies. Next, a ‘Policy Portfolio’ made up of six core asset classes aims to achieve superior returns over the long horizon, and is the main driver of long-term returns. Lastly, the ‘Active Portfolio’ which seeks to outperform the Policy Portfolio, is of skill-based strategies, adopted by GIC’s management within risk limits. The skill based strategies includes choosing investment opportunities within each asset class, plus investing in asset classes not contained in the simplified Policy Portfolio and cross-asset class strategies.[27]

References[edit]

  1. ^ "Asset-backed insecurity". The Economist. January 17, 2008. 
  2. ^ "Temasek portfolio at record high of S$215 billion" as of 31 March 2013
  3. ^ Hamilton-Hart, Natasha (2003). Asian states, Asian bankers : Central banking in Southeast Asia. Singapore: Singapore University Press. p. 89. ISBN 9971-69-270-8. 
  4. ^ "HistorySG". Government of Singapore Investment Corporation is Formed. National Library Board Singapore. Retrieved 30 May 2015. 
  5. ^ Financial Times
  6. ^ "The Most Active Sovereign Wealth Fund Investors of 2013". Sovereign Wealth Fund Institute. March 25, 2014. 
  7. ^ Lim, Kevin (2010-01-11). "GIC says booked loss from $675mln Stuyvesant investment". Reuters. 
  8. ^ Bagli, Charles V.; Haughney, Christine (January 25, 2010). "Wide Fallout in Failed Deal for Stuyvesant Town". NYTimes. Retrieved 2010-05-04. 
  9. ^ "GIC invests $14 billion in Swiss bank UBS". AsiaOne. 2007-12-11. 
  10. ^ "UBS stake may be worth 70 pct less as GIC converts". Reuters. 2010-02-11. 
  11. ^ Huang, Ryan (2011-09-19). "GIC defends UBS investment". ChannelNewsAsia. 
  12. ^ "Citigroup". GIC homepage. 2009. 
  13. ^ "GIC Pares Citigroup Stake". Bloomberg. 2009-09-22. 
  14. ^ Paris, Costa; Venkat, P.R. "Singapore's GIC Suffers $41.6 Billion Loss". The Wall Street Journal. The Wall Street Journal. Retrieved 27 April 2015. 
  15. ^ Our Investments. Gic.com.sg (2013-03-31). Retrieved on 2013-09-16.
  16. ^ "GIC Private Limited Part of Consortium that Acquires Total’s Gas Transport and Storage Unit." Sovereign Wealth Fund Institute. August 16, 2013. Retrieved August 21, 2013.
  17. ^ "Sovereign Wealth Funds Look for Inside Edge by Managing Money In-House." Institutional Investor. September 24, 2013. Retrieved September 27, 2013.
  18. ^ "GIC Manages its investment portfolio for the long term". Today. September 23, 2011. 
  19. ^ "Report on the Management of the GIC Portfolio for the Year 2012/2013". GIC. August 2, 2013. 
  20. ^ "http://www.ifaq.gov.sg/mof/apps/fcd_faqmain.aspx". 2011. 
  21. ^ "Instituional Framework and Governance Structure" (PDF). 2011. 
  22. ^ "GIC Manages its investment portfolio for the long term". 2011-09-23. 
  23. ^ "GIC in a risky world". Oxford SWF Project. July 27, 2011. 
  24. ^ "Singapore's GIC: Assess Thyself!". Oxford SWF Project. 2011-08-09. 
  25. ^ "GIC changes investment framework for greater flexibility". Today. 2013-08-02. 
  26. ^ "GIC posts 4% real returns rate". Channel NewsAsia. 2013-08-02. 
  27. ^ "Feature Article: GIC’s New Investment Framework". GIC. August 2, 2013. 

External links[edit]