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It remains
cloaked in secrecy. GIC says it manages more than $100bn, though
analysts think the figure is three times that amount. It gives no
information about how funds are allocated between asset classes.
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Singapore
wealth fund takes long view
Peter Thal
Larsen & Martin Dickson
Financial Times
04 Feb
08
http://www.ft.com/cms/s/0/a4a05a14-d27d-11dc-8636-0000779fd2ac.html
Tony
Tan has been thrust into the spotlight. Since taking over as
deputy chairman of Singapore's Government Investment Corp several
years ago he has maintained a low profile, in keeping with the
giant fund's preference for attracting as little attention to
itself as possible.
But in the past few weeks GIC has
abandoned its low-key approach in spectacular style. In December
it injected $9bn (£4.6bn, €6.1bn) into UBS to boost
the Swiss bank's capital base, which had been eroded by the
meltdown in the US subprime mortgage market. A few weeks later it
invested a further $6.9bn in Citigroup.
These bold moves
make GIC the most prominent participant in the recapitalisation
of some of the world's largest banks, which have received more
than $40bn in the past few months, much of it from
state-sponsored investment funds in the Middle East and Asia. The
investments have also put the 27-year-old body at the centre of
the debate over the funds' growing influence.
Critics have
accused sovereign wealth funds of seeking to exert excessive
influence, of acting as an extension of governments' foreign
policy goals, and of lacking transparency.
In a rare
interview on the fringes of the World Economic Forum in Davos Mr
Tan – a former deputy prime minister of Singapore –
acknowledges the concerns. "I think it's understandable that
there should be some concern in Europe and in America as to what
the agendas of these funds are; do they have political motives,
are they investing for other than commercial reasons?" he
says.
However, he is also keen to distance GIC from some
of its newer rivals. Established in 1981 with a mandate to
preserve the wealth Singapore was accumulating in its foreign
currency reserves, GIC describes itself as a conservative,
long-term fund manager with a portfolio spread across bonds,
equities, commodities, property and alternative assets such as
private equity and hedge funds. Mr Tan also stresses it is a
passive, long-term financial investor.
Nevertheless, it
remains cloaked in secrecy. GIC says it manages more than $100bn,
though analysts think the figure is three times that amount. It
gives no information about how funds are allocated between asset
classes. And the only indication of its performance came two
years ago when, on its 25th anniversary, Lee Kuan Yew,
Singapore's first leader and GIC's chairman, revealed the fund
had generated annual returns of 9.5 per cent in dollar terms, or
5.3 per cent after inflation.
What is clear, though, is
that GIC's investments in UBS and Citi were made possible by a
canny bet on the markets.
Executives had in recent years
become concerned about the amounts of leverage in the financial
markets. They had already decided to avoid more esoteric
financial instruments, such as collateralised debt obligations.
"We studied CDOs on many occasions in the past several
years. We could not understand who was bearing the risk," Mr
Tan says.
After a thorough study, GIC decided in mid-2007
to reduce its exposure to equities by shifting part of its
portfolio into cash, something the fund had not done for years.
It proved to be a smart move, though Mr Tan acknowledges there
was an element of good fortune about the timing.
The
decision left GIC poised to act quickly when UBS called in early
December looking for cash. According to people familiar with the
matter, the Swiss bank initially asked for about $2bn, but GIC
quickly indicated it was willing to put up much more.
To
some observers, the UBS and Citigroup investments signal GIC is
taking a more aggressive approach. But Mr Tan says the most
recent deals were "unusual transactions brought about by an
unusual combination of events" that are unlikely to be
repeated. "I do not see this as a normal line of business
for GIC."
He acknowledges that greater scrutiny will
force GIC to become more transparent and endorses the planned
code of conduct for sovereign wealth funds – though he
thinks it should be flexible and voluntary.
Close
observers suggest that changes will be gradual and limited.
"There hasn't been a wholesale conversion to the general
principle of transparency," says Garry Rodan, of Australia's
Murdoch University.
Additional reporting by John
Burton in Singapore
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