SINGAPORE, Sept 29 — The Government of Singapore Investment Corp’s (GIC) portfolio sank by more than a fifth in the wake of last year’s financial crisis, but it has since erased a large part of the red ink thanks to the recent global stock market rally.
According to GIC’s latest annual report, its investments - valued at well over US$100 billion (RM350 billion) — slumped more than 20 per cent in Singapore dollar terms for the year ended March 31.
But the loss would have been more severe had the investment agency not taken steps to reduce its stakes in stocks before the markets’ collapse in September last year.
For this reason, GIC has weathered the financial crisis well, said its deputy chairman and executive director Tony Tan yesterday.
“We had anticipated the crisis and taken precautionary action which mitigated losses in the ensuing bear markets,” he added.
Starting as early as July 2007, GIC steadily sold equities in its portfolio until the onset of the crisis last September.
As a result, it reduced its exposure to public equities by over 10 percentage points of its overall portfolio, converting these investments to cash.
Tan said yesterday that this was the first time GIC had timed the market in such a significant way since its inception in 1981. The agency usually takes a long-term view of investments.
Still, it could not fully avoid taking a hit.
The loss dragged down its 20-year nominal annual rate of return in Singdollar terms from 5.8 per cent to 4.4 per cent.
Its real rate of return, after accounting for global inflation, tumbled from 4.5 per cent to just 2.6 per cent.
In US dollar terms, the nominal annual returns were 5.7 per cent.
The good news is that GIC’s portfolio has recovered more than half of last year’s loss as world stock markets recovered sharply, said Tan.
From early this year, GIC started to buy back the equities it sold earlier and has restored the equities proportion of its portfolio back to pre-crisis levels, said GIC chief investment officer Ng Kok Song.
Because stock prices fell so much, GIC was able to repurchase these investments at an average of 30 per cent below the prices at which they were sold, Ng added.
Another key factor has been the recovery in GIC’s investments in banking giants Citigroup and UBS.
Ng said: “While the UBS investment is still showing a loss, the investment in Citigroup has made a profit, part of which has been realised.”
GIC sold about half its stake in Citigroup recently, reaping a profit of US$1.6 billion.
But Tan cautioned against reading too much into yesterday’s figures, emphasising that GIC’s long-term focus and deep experience meant that it is not distracted by short-term market volatility.
“Our 20-year investment horizon allows us to think and act long term... we are confident that we can deliver good, sustainable long-term returns for the Government,” he added.
This is the second year that GIC has publicly released an annual report which — aside from performance figures — also states how it is governed, its investment approach and relationship with the Government.
Singapore’s other government-linked investment agency, Temasek Holdings, also recently released its annual report.
Temasek’s net portfolio fell more than GIC’s — about 30 per cent to S$130 billion (RM319 billion) on March31 this year. But it has also rebounded quicker than GIC’s, recovering almost all its losses to reach S$172 billion as at July31.
Tan said: “GIC has a diversified, balanced portfolio with both equities and bonds. Although the equity markets have caught up, you’ll not get the same returns.”
Another factor, said Ng, could be due to Temasek’s portfolio being more Asia-centric.
GIC also said yesterday that it has strengthened its organisation internally.
Its group president Lim Siong Guan said that it has centralised financial planning and management for better and faster decisions on liquidity and cash management.
It is also enhancing training for staff at all levels. — The Straits Times
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