Lower Investment Returns Reported by Temasek Holdings and GIC

Parliamentary Question by Mr Saktiandi Supaat:

To ask the Prime Minister and Minister for Finance (a) whether the Government assesses that Temasek’s and GIC’s risk-adjusted returns relative to appropriate global benchmarks remain competitive; and (b) how their mandates should evolve to balance capital preservation with the need for higher real returns ahead.

Parliamentary Question by Mr Shawn Loh:

To ask the Prime Minister and Minister for Finance (a) whether the investment returns of GIC and Temasek Holdings have underperformed the Government's expectation; (b) if so, whether there is an impact on the Government's Net Investment Returns Contribution to the Budget; and (c) what steps have been taken to ensure that the investment entities have incentives that are aligned to achieve better performance.

Parliamentary Question by Mr Shawn Loh:

To ask the Prime Minister and Minister for Finance (a) whether the Government has assessed the merits of a low-cost passive index-tracking investment approach for its investments; (b) whether the Government has compared this to GIC and Temasek Holdings’ active and more costly investment management approaches; and (c) if so, what are the considerations in deciding to give GIC and Temasek Holdings the investment mandates to choose the latter approach.

Parliamentary Question by Mr Liang Eng Hwa:

To ask the Prime Minister and Minister for Finance (a) whether the Government is satisfied with the long-term investment performances of GIC, Temasek and MAS when measured against the relevant risk-adjusted global benchmarks; and (b) whether the Government sees the need to review the capital allocation and investment risks framework of GIC, Temasek and MAS.

Parliamentary Question by Mr Fadli Fawzi:

To ask the Prime Minister and Minister for Finance (a) whether the difference between GIC's investment returns and the interest payments made by the Government to the CPF Board on Special Singapore Government Securities has narrowed in tandem with the underperformance of GIC relative to other major sovereign wealth funds; and (b) if so, how will this impact the Government's fiscal position or rate of reserves accumulation.

Parliamentary Question by Assoc Prof Jamus Jerome Lim:

To ask the Prime Minister and Minister for Finance (a) whether the Government is aware if Temasek has a reference portfolio; (b) if so, what this is; and (c) if not, how does the fund benchmark its investment performance.

Parliamentary Question by Assoc Prof Jamus Jerome Lim:

To ask the Prime Minister and Minister for Finance (a) whether the Government is aware if GIC uses risk-adjusted performance metrics such as the Sharpe ratio in assessing portfolio performance relative to its reference portfolio; and (b) if so, whether a description of such metrics can be provided at a high level.

Parliamentary Question by Mr Liang Eng Hwa:

To ask the Prime Minister and Minister for Finance (a) in view of the fragmenting global geopolitical environment and its associated investment risks, whether the Government sees the need to review the current investment mandates of both GIC and Temasek; and (b) whether the emerging investment landscape is assessed to be conducive to sustaining a steady Net Investment Returns Contribution in the next decade.

Parliamentary Question by Mr Ng Shi Xuan:

To ask the Prime Minister and Minister for Finance (a) what is the Government’s assessment as to whether GIC's Reference Portfolio remains appropriate in reflecting its long-term risk posture and mandate; and (b) what other metrics does the Government consider when evaluating GIC's investment performance, apart from the primary metric of the rolling 20-year real rate of return.

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Parliamentary Reply by Senior Minister of State for Finance, Mr Jeffrey Siow:

Recent media reports have compared the performance of GIC and Temasek with that of other funds, including other sovereign wealth funds. Such comparisons are often done, but they should be interpreted in their proper context because different funds operate under different mandates and risk profiles.

The Government assesses GIC and Temasek's performance primarily against their respective mandates and risk profiles, and not with other funds. Our focus has always been on long-term performance, rather than on short-term or year-to-year fluctuations.

GIC is the Government's fund manager, and its mandate is to preserve and enhance the international purchasing power of the assets under its management. In recent years, GIC took pre-emptive measures to moderate its risk exposure, in anticipation of increased market volatility and heightened valuations. These measures were intended to keep portfolio risks within acceptable limits and to guard against the possibility of significant asset impairment in the event of a sharp market correction. But as equity markets have continued to remain elevated, these prudent de-risking measures resulted in some foregone returns.

Any assessment of returns must, therefore, be considered alongside the risks that are taken to achieve them – a point that Assoc Prof Jamus Lim made, where he referred to the Sharpe ratio in his Parliamentary Question (PQ). GIC monitors a wide range of risk indicators, including and beyond the Sharpe ratio. In fact, GIC publishes both the returns and volatility or the risks associated with its portfolio in its annual report to provide a more complete picture.

Ultimately, what is more important is the longer-term performance that is achieved within acceptable risk limits. On that basis, GIC has achieved a real return of 3.8% per annum over the past 20 years. This outcome reflects, in part, GIC’s active management, which enabled it to consistently add value to portfolio returns, preserve the international purchasing power of the assets under its management, and deliver returns above global inflation.

Temasek began as a holding company for the Government’s local assets. While Singapore-based Temasek Portfolio Companies (TPCs) continue to form a core part of its total portfolio, Temasek has progressively expanded its direct equity investments overseas – initially in Asia, and more recently across global markets.

Temasek operates mainly as an active, bottom-up investor. It does not operate against a conventional reference portfolio. Instead, it invests directly in companies in the geographies and domains where it has built deep capabilities, and where it sees long-term growth potential. Relative to GIC, Temasek therefore operates at the higher end of the risk spectrum.

In recent years, Temasek’s performance was affected by the performance of the Chinese market, though this was mitigated by higher returns from its growing investments in Europe and the United States (US). Nonetheless, over the last 20-year period, Temasek has reported a Total Shareholder Return of 8% per annum in US dollar terms.

Taken as a whole, the Government’s assessment is that the returns generated by GIC and Temasek are reasonable and within expectations, given their mandates and risk profiles. We will continue to review their mandates and performance regularly, in line with changes in the global economic investment landscape.

Some Members asked about the implications of our investment entities’ recent performance on the sustainability of the Net Investment Returns Contribution (NIRC) and the Government’s ability to meet our Central Provident Fund (CPF) liabilities. As explained in this House previously, the Net Investment Return framework was designed to ensure a steady and sustainable stream of income for the annual Budget. The NIRC is thus derived from the expected long-term real rate of return which the Reserves can sustain, and not short-term market returns.

The Government is able to meet all debt servicing costs and obligations, including the committed CPF rates through the Special Singapore Government Securities (SSGS). GIC does not just manage the SSGS or CPF monies on their own, but a combined pool of Government funds, including a significant sum of unencumbered assets. This approach allows GIC to invest for the long term and to secure good long-term returns.

As investment markets are uncertain and volatile, GIC’s returns over shorter periods could be low or even negative. But the Government is able to absorb these short-term market risks, because it has a strong balance sheet. This substantial buffer of net assets enables the Government to meet the obligations on its liabilities and continues to underpin the Government’s strong fiscal position.