Government's Benchmark for Annualised Real Rate of Return for GIC and Temasek Holdings

Parliamentary Question by Mr Png Eng Huat:

To ask the Minister of Finance what is the benchmark set by the Government’s investment mandate for the annualized 20-year real rate of return for GIC and Temasek Holdings.

Parliamentary Reply by Minister for Finance Mr Heng Swee Keat:

The Government’s assessment of the long-term performance of GIC and Temasek goes beyond using one single benchmark. The Government takes into account a number of factors including the entities’ distinct roles, risk exposure and underlying market and investment trends to make a considered and comprehensive assessment of the entities’ performance. Let me elaborate, starting with GIC.

GIC is the Government’s fund manager. Its mandate is to achieve good long-term returns above global inflation, to preserve and enhance the international purchasing power of Singapore’s reserves.

GIC invests in a globally diversified portfolio spread across various assets classes. Its portfolio is constructed to take into account a range of possible economic scenarios.

The construction of GIC’s portfolio is subject to the Government’s risk preference, which is expressed through a Reference Portfolio^[1] made up of 65% global equities and 35% global bonds. This is not a benchmark, but an expression of the risk that Government is prepared for GIC to take in its long-term investment strategies.   

On occasion, there may be a difference between the risk exposure of GIC and the reference portfolio. Such an adjustment allows GIC to lower its risk exposure, in times of market exuberance. Conversely, GIC may also increase its risk exposure when the opportunity arises. This is part of a disciplined, professional approach to long term value investing. In recent years GIC has been concerned with heightened-valuations in financial markets and has shifted towards a slightly more conservative portfolio mix to guard against rising volatility.

Therefore, we evaluate GIC’s long-term investment performance, not only based on its rolling 20-year rates of return, but also the risk it has had to take in order to achieve these returns. Such comparisons are available in GIC’s annual report.

Let me now move on to Temasek. Temasek is not a fund manager, but an investment company that owns its assets. It is an active equity investor that seeks to create and deliver sustainable long-term value for its shareholder, the Government.     

One measure that the Government looks at is Temasek’s long term Total Shareholder Returns or TSR, which measures annual changes to its net portfolio value after adjusting for any capital injections or dividends paid. The TSR must be viewed in the context of Temasek’s risk-adjusted hurdle rate, which is a weighted average of the risk-adjusted cost of capital of all its investments. Temasek’s risk-adjusted hurdle rate is published in its annual report.

The Government also compares Temasek’s long term TSR with various market indices, such as the MSCI, taking into consideration its portfolio mix.   

To sum up, the Government’s approach is to evaluate the entities’ long-term performance, taking into account risk exposure, underlying market trends, and other factors relevant to each entity.  

Our view is that our investment entities have performed creditably in challenging market conditions. The Government will continue to take a long term view and work closely with GIC and Temasek to ensure that they deliver good long-term returns for Singaporeans.

^[1] Since April 2013