Singapore turns to emerging markets for returns
Saturday, 27 September 2008
Chen Shiyin and Shamim Adam
Government of Singapore Investment Corp., overseeing more than $100 billion of reserves, is turning to emerging markets and private equity to boost returns after cutting back stocks and investments in developed nations.
The fund, known as GIC, raised holdings of natural resources and hedge funds, and cut bonds to a quarter of its portfolio from more than three quarters 25 years ago, it said. Stock sales since mid-2007 enabled it to spend $18 billion on stakes in UBS AG and Citigroup Inc. in the past year.
"We see a more challenging investment environment,'' Chief Investment Officer Ng Kok Song said today. "The powerful trend of disinflation that propelled the global capital markets over 25 years seems to have ended.''
GIC, whose chairman is Singapore Minister Mentor Lee Kuan Yew, said annual returns in the past 20 years averaged 7.8 per cent in U.S. dollar terms, compared with 7 per cent for the MSCI World Index. The fund wants a longer-term investment performance after the 1997 Asian financial crisis, 2001 Internet slump and the credit crisis damped returns in recent years.
The subprime meltdown sent the MSCI World Index to the lowest in three years, wiping out almost $14 trillion from global stocks this year.
Temasek Holdings Pte, Singapore's state-owned investment company with a $130 billion portfolio, has had an average annual return of 18 per cent since it was created in 1974. U.S. billionaire Warren Buffett's investment firm Berkshire Hathaway Inc. gained 21 per cent in the past two decades.
GIC's return "isn't exciting at all,'' said Beat Lenherr, who helps oversee more than $20 billion of assets as chief global strategist at LGT Capital Management in Singapore. "You can't hide behind a so-called long-term strategy and say that everything is OK. The slowdown in the U.S. economy will affect growth in emerging markets and the outlook for earnings.''
UBS shares have fallen 59 per cent since GIC announced the investment in December, and Citigroup has declined 26 per cent since the government fund's purchase in January, as both banks wrote off almost $100 billion on investments linked to U.S. subprime mortgages.
Ng, 60, said at a press conference today he's "confident'' both investments will offer long-term returns, though he admitted the timing of the stake purchases could have been better. The fund received so-called reset payments from the two banks to compensate for the decline in the share prices. He declined to be more specific.
"Sovereign wealth funds like GIC understand that these large banks are good long-term bets,'' said Don Gimbel, a Montana-based senior managing director at Carret & Co., which oversees about $2 billion. "Like other global investors, sovereign funds have taken big hits in the last 12 months.''
GIC was ``surprised'' at the magnitude of the credit crunch, though it's "not closing the door'' on opportunities emerging from the crisis, Ng added.
"There are risks stemming from severe macroeconomic imbalances in the world economy, the rising cost of energy and food, and continued de-leveraging of global financial institutions,'' Ng added in a statement.
Financial institutions worldwide have reported more than $500 billion in losses and writedowns. The credit crunch, triggered by a U.S. housing slump, led Lehman Brothers Holdings Inc. to file for bankruptcy and forced the sale of Merrill Lynch & Co. to Bank of America Corp. last week.
GIC's holdings of stocks have fallen to 44 per cent of its portfolio from about half two years ago, while its investments in alternative assets such as private equity and real estate rose to 23 per cent from 20 per cent. Cash made up 7 per cent of its holdings as of March, it said.
The Americas made up 40 per cent of its assets, down from as much as 45 per cent two years ago. Investments in Europe rose to 35 percent from 25 percent. Asia now accounts for 23 per cent of its investments, with Japan making up almost half of them.
The 20-year returns announced today are part of efforts to disclose more amid rising scrutiny of sovereign funds as they increase investments globally, GIC said. It expects to release its asset allocation and long-term returns every year, the government said today. GIC last disclosed its returns two years ago on its 25th anniversary.
The average return over the two decades was 5.8 per cent in Singapore dollar terms, said GIC, set up in 1981 to manage the city-state's foreign reserves.
Hong Kong's Exchange Fund, the $181 billion pool of assets that backs the city's currency, had an investment loss of HK$35 billion ($4.5 billion) in the first half because of declines in global equities.
Temasek, which led investments in Merrill Lynch and Barclays Plc amid the credit market turmoil in the past year, said returns from holdings in publicly listed companies slowed to 7 per cent in the 12 months ended March from 27 per cent the previous year.
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Bloomberg
Government of Singapore Investment Corp., overseeing more than $100 billion of reserves, is turning to emerging markets and private equity to boost returns after cutting back stocks and investments in developed nations.
The fund, known as GIC, raised holdings of natural resources and hedge funds, and cut bonds to a quarter of its portfolio from more than three quarters 25 years ago, it said. Stock sales since mid-2007 enabled it to spend $18 billion on stakes in UBS AG and Citigroup Inc. in the past year.
"We see a more challenging investment environment,'' Chief Investment Officer Ng Kok Song said today. "The powerful trend of disinflation that propelled the global capital markets over 25 years seems to have ended.''
GIC, whose chairman is Singapore Minister Mentor Lee Kuan Yew, said annual returns in the past 20 years averaged 7.8 per cent in U.S. dollar terms, compared with 7 per cent for the MSCI World Index. The fund wants a longer-term investment performance after the 1997 Asian financial crisis, 2001 Internet slump and the credit crisis damped returns in recent years.
The subprime meltdown sent the MSCI World Index to the lowest in three years, wiping out almost $14 trillion from global stocks this year.
Temasek Holdings Pte, Singapore's state-owned investment company with a $130 billion portfolio, has had an average annual return of 18 per cent since it was created in 1974. U.S. billionaire Warren Buffett's investment firm Berkshire Hathaway Inc. gained 21 per cent in the past two decades.
GIC's return "isn't exciting at all,'' said Beat Lenherr, who helps oversee more than $20 billion of assets as chief global strategist at LGT Capital Management in Singapore. "You can't hide behind a so-called long-term strategy and say that everything is OK. The slowdown in the U.S. economy will affect growth in emerging markets and the outlook for earnings.''
UBS shares have fallen 59 per cent since GIC announced the investment in December, and Citigroup has declined 26 per cent since the government fund's purchase in January, as both banks wrote off almost $100 billion on investments linked to U.S. subprime mortgages.
Ng, 60, said at a press conference today he's "confident'' both investments will offer long-term returns, though he admitted the timing of the stake purchases could have been better. The fund received so-called reset payments from the two banks to compensate for the decline in the share prices. He declined to be more specific.
"Sovereign wealth funds like GIC understand that these large banks are good long-term bets,'' said Don Gimbel, a Montana-based senior managing director at Carret & Co., which oversees about $2 billion. "Like other global investors, sovereign funds have taken big hits in the last 12 months.''
GIC was ``surprised'' at the magnitude of the credit crunch, though it's "not closing the door'' on opportunities emerging from the crisis, Ng added.
"There are risks stemming from severe macroeconomic imbalances in the world economy, the rising cost of energy and food, and continued de-leveraging of global financial institutions,'' Ng added in a statement.
Financial institutions worldwide have reported more than $500 billion in losses and writedowns. The credit crunch, triggered by a U.S. housing slump, led Lehman Brothers Holdings Inc. to file for bankruptcy and forced the sale of Merrill Lynch & Co. to Bank of America Corp. last week.
GIC's holdings of stocks have fallen to 44 per cent of its portfolio from about half two years ago, while its investments in alternative assets such as private equity and real estate rose to 23 per cent from 20 per cent. Cash made up 7 per cent of its holdings as of March, it said.
The Americas made up 40 per cent of its assets, down from as much as 45 per cent two years ago. Investments in Europe rose to 35 percent from 25 percent. Asia now accounts for 23 per cent of its investments, with Japan making up almost half of them.
The 20-year returns announced today are part of efforts to disclose more amid rising scrutiny of sovereign funds as they increase investments globally, GIC said. It expects to release its asset allocation and long-term returns every year, the government said today. GIC last disclosed its returns two years ago on its 25th anniversary.
The average return over the two decades was 5.8 per cent in Singapore dollar terms, said GIC, set up in 1981 to manage the city-state's foreign reserves.
Hong Kong's Exchange Fund, the $181 billion pool of assets that backs the city's currency, had an investment loss of HK$35 billion ($4.5 billion) in the first half because of declines in global equities.
Temasek, which led investments in Merrill Lynch and Barclays Plc amid the credit market turmoil in the past year, said returns from holdings in publicly listed companies slowed to 7 per cent in the 12 months ended March from 27 per cent the previous year.
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Bloomberg