GIC's Published Annualised Nominal Rates of Return

Date: 13 March 2013

Parliamentary Question from Mrs Lina Chiam:

To ask the Deputy Prime Minister and Minister for Finance in respect of the Government Investment Corporation's Report on the Management of the Government's Portfolio for the Year 2011/12, what are the reasons for omitting the annualised nominal rates of return in Singapore dollar terms given these figures are reported in US dollar and Singapore dollar terms in previous years.

Reply by DPM and Finance Minister Tharman Shanmugaratnam: 

1. Mdm Speaker, Mrs Lina Chiam referred to GIC’s “Report on the Management of the Government’s Portfolio for the Year 2011/12”. GIC has been publishing this annual report on its role as a fund manager for Government reserves since 2008. The latest report in fact provides significantly more information on GIC’s investment performance than when GIC started these annual reports five years ago, whilst focusing on the indicators that matter most in evaluating its performance. These indicators reflect GIC’s investment mandate. The publication of these indicators is aimed at enhancing understanding of GIC’s performance against that mandate. 

2.  The information published focuses on the primary metric for evaluating the investment performance of the GIC-managed portfolio: this is the long-term real rate of return, i.e. returns over and above a measure of global inflation. This measure reflects GIC’s mandate, which is to preserve and enhance the international purchasing power of our overseas assets over the long term.

3. GIC’s mandate of achieving returns above global inflation also shapes its investment strategies. It invests to achieve good, real returns on its overall portfolio over the long term, rather than nominal returns. It selects investment assets and decides on the shape of its portfolio with this aim in mind.

4. As presented in the 2011/12 report, the annualised rolling 20-year real rate of return on the portfolio was 3.9%. This means that over a 20-year period, on top of having protected the value of the portfolio against global inflation, the portfolio generated a return averaging 3.9% per year.

5. The portfolio’s real return, i.e. nominal returns less global inflation, is the same regardless of the currency used for its calculation. This is because both the nominal returns and global inflation have to be expressed in the same currency for computation.  Any change in how one component is expressed in terms of currency will similarly apply to the other. Hence the currency effect cancels out. 

6. However, to facilitate comparison of investment returns achieved by other global investment funds, the report also includes the nominal return in US dollars, which is the commonly expressed basis internationally.  GIC stopped publishing its nominal returns converted to Singapore dollars three years ago, not just last year. The use of US dollars when showing nominal returns avoids confusion when comparisons are made with other fund managers or global market indices. Indeed, in previous years, we found that some readers had compared GIC’s returns in Singapore dollars with the returns of global market indices in US dollars. However, I have to emphasise once again that it is the GIC’s real long term returns, not its nominal returns, that reflect its mandate and are its key performance measure.

7. I should reiterate too that GIC now publishes more information on its performance than when it began this annual report five years ago.  Its reports over the last two years include GIC’s performance over a 5 year and 10 year period, in addition to the 20 year period that remains its primary goal. For each of these periods, GIC also includes comparisons with the performance of market portfolios that are typical of those adopted by large global investors. Hence it includes comparisons with market portfolios comprising (i) 60% global equities and 40% global bonds, and (ii) 70% global equities and 30% global bonds. GIC also publishes information on its major investment strategies.

8. Taken together, GIC is publishing more information, and focused on what matters to GIC’s mandate.