GIC’s First Ever Report
GIC, possibly the 3rd largest SWF globally, is estimated to have over $300 billion in assets. The annualised return over 20 years is 4.5%, or 90% returns, a modest figure. Whether it is good or bad, it is hard to say unless we know what kind of assets were invested in. Still, although GIC is estimated to have lost 44% of its holdings from 2 years ago and considering the ongoing earth-shaking and giant-slaying market correction, it is a comforting wonder that GIC is still afloat, for now.
By Kevin Lim and Saeed Azhar
SINGAPORE (Reuters) – Singapore sovereign fund GIC said it still had plenty of cash after its multi-billion dollar investments in UBS and Citigroup and saw opportunities in the United States amid the financial storm.
The Government of Singapore Investment Corp, which manages assets estimated at around $300 billion, held 44 percent of its portfolio in stocks and about 7 percent in cash at end-March 2008, it said in its first-ever annual report on Tuesday.
“Problems in the U.S. would present very interesting opportunities in impaired assets,” Group Chief Investment Officer Ng Kok Song said at a press conference, although he added the investment environment was the most challenging since the fund was founded in 1981.
GIC released its first annual report after Singapore agreed with Abu Dhabi and the U.S. to a voluntary set of principles for sovereign funds, aimed at allaying Western fears that their investments are politically motivated.
GIC painted a bleak outlook for the global economy, saying efforts by the U.S. government to bail out its financial sector would need time to take effect.
“We should not assume that the worst is over and we continue to be watchful and prudent in our assessment of the economic risks and in our investments,” said Deputy Chairman and Executive Director Tony Tan.
Ng said GIC planned to increase its exposure to emerging economies, “particularly Asia because this is where the growth potential is and this our backyard.”
“We are seeing a lot of opportunities both in public markets as well as private markets such as real estate,” Ng added.
GIC, the world’s third largest sovereign wealth fund according to Morgan Stanley, has emerged in the limelight in recent months following its high-profile investments in Citigroup.
The fund, which manages the bulk of Singapore’s foreign currency reserves, says it manages well over $100 billion although many analysts say the figure is around $300 billion.
Tan said GIC released its first annual report because it believed “such clarity and disclosure will benefit both the Singapore public and the international investment community.”
GIC said in its annual report that it achieved an average real return of 4.5 percent per annum in Singapore dollar terms over the 20 years to March. In nominal terms, its Singapore dollar returns was 5.8 percent, down from over 8 percent in 2005.
The fund’s nominal return over the same period, when measured in U.S. dollars, was 7.8 percent, it added.
GIC said 34 percent of its portfolio was invested in the United States, another 35 percent in Europe and 23 percent in Asia. The Americas and Australasia accounted for the remainder.
The state investor also said that 26 percent of its portfolio was in fixed income and 23 percent in alternative investments such as real estate and hedge funds.
Ng said GIC suffered some “mark-to-model” losses from its investments in UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) and Citigroup (C.N: Quote, Profile, Research, Stock Buzz) convertible notes, but believed the two would generate good long-term returns.
The firm owns convertible notes that, if exercised, would give it about 9 percent stake of Switzerland’s UBS and around 4 percent of Citigroup.
Ng also said the firm’s losses from its investments in the two banks had been minimized through reset clauses in the original investment agreements.
Analysts said sovereign funds may become more cautious.
“They had invested early on in the crisis, but their first bite had been costly because markets fell,” said Song Seng Wun, Singapore-based senior economist at Malaysian investment bank CIMB, when asked about GIC.
“With the current uncertainty I think most of the sovereign wealth funds will be more selective in looking at what’s on their plate. There will be opportunities in OECD countries which deflate from the excesses of the past,” he added.
(Editing by Neil Chatterjee)