GIC's and Temasek's Returns and Expenses

Parliamentary Question by Mr Leon Perera:

To ask the Minister for Finance (a) why is the gap between GIC's nominal return and its reference portfolio return higher over the past five years versus the past 20 years; (b) how have GIC and Temasek Holdings performed in terms of annualised rate of return over the past ten years versus major international sovereign wealth funds such as those of Norway, Qatar, UAE, China, Hong Kong, Australia and Saudi Arabia; and (c) how do GIC and Temasek Holding's total management and operating expenses as a share of assets managed compare to the average for leading global sovereign wealth funds. 

Parliamentary Reply by Second Minister for Finance, Mr Lawrence Wong:

1.   Mr Speaker, the answer to Mr Perera’s first question can be found in GIC’s latest Annual Report, which is available online. 

2.    Let me quote the answer from page 15 of the GIC Annual Report – “… the difference in the returns between the GIC Portfolio and Reference Portfolio is largely due to the difference in risk exposures. The GIC Portfolio has a more diversified asset composition, as well as a lower exposure to developed market, or DM (Developed Market) equities. In addition, increasingly stretched valuations in DM equities have prompted a reduced allocation to this asset class in the GIC Portfolio in recent years. This has resulted in lower returns compared to the Reference Portfolio over the 5-year period, as DM equities, especially those in the US, have done particularly well. However, we believe the high valuations of DM equities portend lower future returns.”   

3.    Mr Perera also asked for a comparison of GIC and Temasek with other Sovereign Wealth Funds, in terms of their returns and expenses. It is not meaningful to compare returns and expenses across different entities globally as they have different mandates, risk profiles and operating constraints. All else being equal, a fund of a higher risk profile should generate higher returns over time, but the outcomes will be more volatile.  As another example, a fund that is purely invested in publicly-listed equities and bonds would likely incur lower expenses, than a fund that invests in real estate and private equity, as these are markets which are harder to access, but have the potential to yield further return. 

4.    Thus, the Government’s approach is not to apply a single benchmark, as I had explained in my reply to another PQ in July 2017. Instead, the Government evaluates the investment entities’ performance by looking at their long-term returns, taking into account risk exposure, underlying market trends and other factors relevant to each entity. On the whole, the Government’s view is that GIC and Temasek have performed creditably in challenging market conditions.