GIC generates returns

Straits Times Feb 2, 2009

DAVOS: The Government of Singapore Investment Corporation (GIC) is confident that it will be able to continue generating reasonable returns for the country's reserves despite a tougher global investment climate.

But the investment manager must continue to manage its investments carefully and cautiously, diversify its portfolio intelligently and manage risks well, said its deputy chairman and executive director Tony Tan.

Dr Tan told The Straits Times that GIC will be able to deliver the sustainable investment returns which will enable the Government to 'prudently draw on Singapore's reserves for budgetary purposes over the long term'.

He said on the sidelines of the World Economic Forum in Davos last Friday: 'This is the best contribution that GIC can make towards ensuring that Singapore continues to progress and prosper.'

Elaborating on GIC's key strengths, he cited three factors that give GIC the edge amid the increased market volatility and financial turmoil.

The first is a long-term investment horizon of '20 years or more', which allows GIC, with an estimated portfolio of US$300 billion (S$450 billion), to ride out fluctuations in the value of its investments over several economic and market cycles.

Dr Tan added that this has become very important since it is the long-term expected real return of the Government's portfolio which will determine how much the Government can draw on reserves.

The Government recently revised the Constitution to enable it to draw on more of the returns from investing its reserves.

The second strength of GIC is its diversified portfolio, which includes many asset classes from equities and bonds to real estate, private equity and commodities.

GIC invests in both the developed markets of the United States and Europe, as well as developing markets in Asia and other parts of the world.

Dr Tan said: 'This diversified portfolio as reflected in GIC's asset allocation strategy enables GIC to work towards a better optimal balance between risk and reward.'

He reiterated GIC's investment aim, which is to ensure minimal losses rather than trying for maximum returns. 'Our philosophy is to look after the downside, and the upside will look after itself.'

Finally, GIC has built up a 'deep pool of expertise' in its staff, who are able to operate in many countries and markets.

Elsewhere in the 30-minute interview, Dr Tan noted the positive feedback the recent Singapore Budget received from business leaders in Davos, and revealed that GIC's cash position has increased.

He also noted that top bankers and heads of large corporations he met were 'very impressed' with the Budget.

They said it reflected a plan not only to weather the present recession, but also one to help Singapore emerge as a stronger, more resilient nation in the future. And all this without the need to borrow.

'This is the vital difference which sets Singapore apart from all the other countries I've talked to. It's the one thing which impressed bankers and businessmen,' he said.

Dr Tan also revealed that GIC's cash reserves have risen above 7 per cent of its portfolio in the second half of last year, having cut back on exposure to equities since mid-2007. He said its current portfolio is 'underweighted in equities, overweighted in cash and cash equivalents'.

Asked about the general sentiment of delegates regarding the crisis, he said: 'Everybody's worried. This is the most serious economic and financial crisis the world has seen in the last 50 years...nobody knows how long the recession is going to last.'

But he said that if the recent slew of fiscal and monetary measures work, recovery could come later this year with the end of recession by 2010.