gic & the management of singapore's reserves
TRANSCRIPT
GIC & The Management of
Singapore's Reserves
Outline
1. About GIC
– Role and Mission
– History
– Governance Framework and Organizational Structure
– GIC’s role in Government Reserves Management
2. Characteristics of the GIC Portfolio – Investment Framework
– Asset Mix
– Geographical Distribution
– Investing Principles
3. Q&A
Outline
About GIC
Our client requires us to achieve good long-term returns to preserve and enhance the international purchasing powerof the reserves
GIC’s Investment Goal
Organization
Assets
Staff
Offices
GIC
> US$100 billion
>1,200
Singapore | LondonNew York | San Francisco Tokyo | Beijing | Shanghai Seoul | Mumbai | Sao Paulo (2014)
TODAY
GIC
Few billion
<50
SingaporeLondonNew YorkSan Francisco
• It was decided that Singapore’s reserves shouldbe invested in longer-term, higher-yieldingassets.
• GIC set up to manage foreign reserves.Mr Lee Kuan Yew, then PM, chaired GIC’sBoard. He stepped down in 2011 and wasSenior Advisor o the Board. PM Lee HsienLoong is now Chairman of GIC Board.
1981
MOF
Few hundred million
<20
Singapore
1960s
Reservemanagementinitiated at MOFin late 1960s
MAS
Few billion
<50
SingaporeLondon
1971 - 1980
• Monetary Authorityof Singapore (MAS)set up as central bank.
• Reserve managementtransferred to MASfrom MOF
Our History
Asset classes
Nominal Bonds
Inflation-Linked Bonds
Developed Market Equities
Emerging Asian Equities
Emerging Non-Asian Equities
Private Equity
Real Estate
Cash
Natural Resources
Marketable Alternatives
Infrastructure
Real Return Programme
Special Situations
2000’s - 2012
Bonds
Equities
Properties
Cash
1981-2000’s
Mainly governmentbonds and bank deposits
1960s
Mainly governmentbonds and bank deposits
1971 - 1980
Nominal Bonds & Cash
Inflation-Linked Bonds
Developed Market Equities
Emerging Market Equities
Real Estate
Private Equity
2013
Our History
GIC’s Role in Reserves Management
Why Does Singapore Need Reserves?
1. AN INSURANCE MOTIVE: Provide a key defence for Singapore in times of crisis
(natural calamities, war or economic crisis). Our reserves are a strategic asset should a major
crisis occur, allowing us to mount a decisive and effective response.
2. A “CONSUMPTION SMOOTHING” MOTIVE: Investment of our reserves provides a
valuable stream of income for the Government Budget, which can be spent or invested for
the benefit of current as well as future generations.
The Funds We Manage Source of funds: Proceeds from issuance of government securities,
government surpluses & proceeds from the Government’s land
sales
Ownership of assets under management remains with the
Government; we do not manage third-party monies
The funds may not be invested in Singapore & UNSC
sanctioned countries.
Funds are invested in over 40 countries globally
Use of Funds A safeguard against unforeseen circumstances
A regular contributor to the annual government budget
1
2
3
4
1
2
2008
2009
2010
2011
2012
2013
Guaranteeing of bank deposits with S$150b of
the reserves
Resilience Package & Start of
Net Investment Returns Contribution
NIRC: S$7.83b
NIRC: S$7.91b
NIRC: S$7.65b
NIRC: S$7.94b
NIRC: S$8.55b
2014
2015
NIRC: S$8.94b
GIC’s Role in Reserves Management
- Short-term liquidity
- Currency intervention
- Steady, sustainable income
for government spending via
NIRC
- Contingency spending
- Contingency spending
- Income for government via
NIRC
- Holding of strategic
companies
Conservative Fairly conservative Less conservative
Liquid Overall portfolio fairly liquid,
diversified, with illiquid asset
classes
Illiquid and fairly concentrated
OFR figure is public info
(US$248b as at 31 March 2015)
AUM not disclosed AUM is public info
(S$266b as at 31 March 2015)
Purpose of Funds
Risk Profile
Liquidity Profile
Transparency
The Government decides how capital should be allocated among the three reserves
management entities, taking into account their different investment orientations.
GIC and Temasek are fundamentally different in the nature of their business
operations and investment objectives, with separate and independent
decision-making processes and authority
GIC vis-à-vis Temasek
Fund manager for Singapore’s foreign reserves
Assets under management are owned by the Government
Institutional investor
Owns the assets it manages
Characteristics of the GIC Portfolio
12
11%-15% 4%-6%
25%-30%
Right mix of beta and alpha
Investment return is made up of 3 distinct components:
Our objective is to construct a portfolio with the best mix to meet themandate:
• Beta: As embodied in the Policy Portfolio
• Alpha: As implemented through the Active Portfolio
Cash
Beta (asset classes)
Alpha (active management)
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2
3
Investment Framework
+ =
POLICY PORTFOLIO
(Beta)
ACTIVE PORTFOLIO
(Alpha)
GIC PORTFOLIO
Allocation among six core asset
classes
Key driver of returns over the
long term
Robust across variety of economic
environments
Approved by the GIC Board
Comprises overlay of active,
skill-based strategies
Adopted by GIC management
Overseen by GIC Investment Board
Represents actual exposures of the
GIC portfolio
Within risk limits set by
Government
GIC’s Investment Framework
20y
10y
5y
Tim
e h
ori
zon
3y
Policy Portfolio• Systematic risk premia• Robustness – caters to
multiple scenarios
Active Strategies• Idiosyncratic return streams• Undertaken by many internal
and external teams
Medium-Term Strategy (MTS) and Management Overlay
• Asset allocation changes to navigate extreme valuations and avoid permanent
impairment
Our framework is structured to
achieve clarity on:• The drivers of return
• Horizon over which they pay off
• Best governance around decisions
Owned by Board, recommended by
Management
Overseen by Board Committee; implemented by Management
MTS approved by Board.
Overlays implemented by Management, within Risk limits
approved by Board
GIC’s Policy Asset ClassesHarvesting Long-Term Risk Premiums
Asset class Role
DM Equities Capture growth risk factor through listed companies
EM Equities Capture the premium associated with economies transitioning from
emerging to developed: faster growth, investor-friendly reforms, risk
premium compression
Real Estate Contribute to portfolio diversification, capture real returns and provide
some inflation protection
Private Equity Capture returns from manager skill, illiquidity premium and exposure to
growth risk factor via unlisted companies
Inflation-Linked
Bonds
Earn long-term real return, and provide protection from unexpected
inflation risk
Nominal Bonds Provide protection from growth risk, liquidity and diversification
11%-15%
4%-6%
Portfolio Policy Asset Mix
11%-15%
11%-15%
4%-6%
25%-30%
Portfolio Policy Asset Mix
Developed Market Equities
Emerging Market Equities
Nominal Bonds & Cash
Inflation-linked Bonds
Real Estate
Private Equity
Developed Market Equities
Emerging Market Equities
Nominal Bonds & Cash
Inflation-linked Bonds
Real Estate
Private Equity
20% - 30%
15%-20%
4%-6%
25%-30%
9%-13%
11%-15%
Portfolio Geographic Distribution
43%
25%
30%
AMERICAS
EUROPE
ASIA
2%AUSTRALASIA
Temasek’s Portfolio by Geography
• Public Equities:
• Listed and Pre-IPO
• Relative and Total Return
• Fixed Income:
• Sovereign Bonds
• Corporates (Investment Grade and High Yield and including
Straight Debt, Loans, Convertible Bonds and Private Debt)
• External Fund Managers
Public Markets
• Investment instruments: Flexible across equity, structured /
convertible securities and mezzanine and other quasi-equity
instruments
• Deal types: (i) minority equity private placements and minority
partnerships in buyouts; (ii) pre-IPO funding rounds; (iii)
PIPEs; and (iv) partnerships with corporates
• GIC is a minority investor
Private Equity
Real Estate
Breath of Investment Coverage Thousands of Investments in over 40 Countries
Annualised Rolling 20-Year Real Rate of Return of the
Government's Portfolio
*As of 31 March 2015
20-year
annualised
real return
as at 31
March 2015
= 4.9%
Our ‘5Ps’ of Investing
Pursue intrinsic value & maintain price discipline
Practise long-term investing
Pick our spots: be focused & leverage our strengths
Pay attention to risk control
Prepare for the future
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Our Competitive Edge
• Large size and stable capital – access to many global opportunities
• Ability to invest with a long-term horizon, riding through market volatility
– Reap long-term risk premiums (e.g. illiquidity)
– Enables contrarian stance in the face of short-term sentiment
– Compounding of returns
• Expertise across different asset classes and through the capital structure –
greater synergies
– E.g. leveraging off equity relationship to structure and participate in company’s debt
investments.
• Extensive network – superior information and access
• Strong global reputation makes us a partner/investor of choice
The Current Environment
2009
Historical Average
Current
2007
Low Returns Ahead
Thank You