Government Of Singapore Investment Corporation (Investment Guidelines)

Date 4 February 2009

Question No. 923 (by Ms Penny Low, MP for Pasir Ris-Punggol GRC):

To ask the Minister for Finance (a) what are the mandate and investment guidelines of the Government of Singapore Investment Corporation (GIC); (b) what is its performance record so far, compared with its peers; (c) how have these guidelines changed since GIC's inception in 1981; and (d) whether the guidelines are too conservative or liberal for (i) a fund size that has multiplied substantially over the years and (ii) the investment climate going forward.

Reply by Finance Minister Tharman Shanmugaratnam:

The Government’s mandate for GIC is to achieve a reasonable rate of return above global inflation, over a long term horizon. In the last 20 years to March 2008, the average annual rate of return of the portfolio was 5.8% in Singapore dollar terms. This was 4.5% above global inflation. This data and more information can actually be found in the GIC Report published in September 2008.

GIC has performed well over the long term, in accordance with its mandate. In the current financial meltdown, GIC’s investments have lost value just like other institutional investors. Their overall value has however fallen by much less than the decline in global equity markets of 42% for 2008, mitigated by GIC’s decision early in the crisis to reduce its equity market exposures, and its diversified portfolio. Further, GIC takes a long term approach to investment management, which enables it to ride through the cycles, including the current severe down cycle. It is difficult to make meaningful direct comparisons between the performance of GIC and other institutional investors as the investment horizons, objectives and parameters vary widely.

The guidelines for GIC have not changed fundamentally over the years since its inception. However, GIC has gradually evolved its asset allocation strategy, from the early days when its emphasis was on fixed income instruments, towards an increased allocation for higher risk and higher returns investments like equities and alternative investments. This evolution has resulted in a more diversified and balanced portfolio, aimed at achieving long-term returns, but keeping to an acceptable risk level.

The investment approach of seeking to achieve reasonable returns above global inflation within overall risk tolerance parameters set by the Government is appropriate for our purpose. It will grow the real value of Singapore’s reserves over time, which provide an important cushion for crisis situations like the current economic downturn, as well as generate a continual stream of income that can contribute towards the Government’s budgetary needs.

The Government will continue to review from time-to-time whether the guidelines are appropriate, given the investment objectives and the investment climate going forward.