In investments as in life, you win some and you lose some.

That was certainly the case for GIC, which said earlier this week that it had pared its stake in Swiss private bank UBS, at what could be a loss of more than US$3.5 billion (S$4.8 billion).

GIC did not disclose the loss.

Before the divestment, Singapore's sovereign wealth fund had a 5.1 per cent stake in UBS that it had first acquired for US$9.75 billion in the form of convertible bonds in December 2007 as the sub-prime mortgage crisis was unfolding in the United States.

INVESTING IN UBS: A RARE CHANCE

UBS, one of the biggest casualties of the collapse in the American sub-prime mortgage market, was in need of funds, while GIC got to take advantage of a rare chance to buy a significant stake in an international wealth manager.

It was for the same reason that GIC invested some US$6.88 billion in Citigroup at around the same time, raising its stake in the bank to 4 per cent.

As GIC noted in a statement last Tuesday, the Citigroup investment has panned out quite well, while the UBS one has been a disappointment so far.

GIC has reduced its stake in UBS to 2.7 per cent. A back-of-the-envelope calculation shows it made a loss of more than US$3.5 billion.

As GIC itself said, the international banking sector was under considerable stress during the crisis, and so there were risks as well as opportunities in making such major investments.

Given Singapore's ambitions to be a wealth management hub, GIC's move to become a major shareholder of UBS, the largest private bank in the world, made sense.

CIMB Private Bank economist Song Seng Wun said: "It is a very prestigious bank and Swiss banks, particularly, are very highly regarded across the world.

"And, perhaps, one could say that having a significant stake in UBS gave GIC more leverage to encourage UBS to do more value-added activities in Singapore, although I suspect that even without GIC's investment, UBS would have expanded in Singapore anyway, as it is an important financial centre for Asia-Pacific and the infrastructure is all here."

Indeed, UBS, which in the 1970s became the first Swiss bank to set up operations here, has deepened those roots over the years.

It launched the Asia-Pacific campus of its UBS University in Singapore in 2007. Singapore is also the headquarters for UBS' investment banking business in South Asia, and the bank's trading hub in Asia for foreign exchange, rates and credit.

TOUGH DECADE

Still, UBS, along with other private banks around the world, has not had it easy this past decade.

Dr Ravi Jain, a senior lecturer of finance at the National University of Singapore Business School, summed it up: "In retrospect, the timing (of GIC's investment) was not great, as UBS' and many other banks' share prices fell further as the sub-prime and other mortgage investments continued to perform poorly.

"Subsequently, several other factors - including the increased regulatory burden and higher capital requirements, the decline in deal-making opportunities during the European sovereign debt crisis, and a series of financial scandals - continued to be a drag on the profitability and share price performance of UBS."

In the wake of the financial crisis, governments have tightened regulations on the sector to clamp down on tax evasion, money laundering and terrorism financing. The increased disclosure and compliance procedures that banks have had to undertake as a result of a slew of new rules have also led to rising regulatory costs and thinning margins.

For some, including UBS, it has involved having to fork out hundreds of millions of dollars in settlements with the authorities in the US and Europe over tax evasion probes.

For smaller players, these increasingly challenging business conditions have forced them to exit certain markets altogether.

Banks such as ABN Amro, Societe Generale, Barclays, ANZ and Coutts have sold their private banking businesses in Singapore - and often in other parts of Asia too - to focus on strengthening their foundations back home and in larger markets.

UBS, being a large bank, has managed to hold its ground and even grow. Earlier this month, it reported that its assets under management in Asia-Pacific have crossed 300 billion Swiss francs (S$427 billion), becoming the first wealth manager in the region to achieve this milestone.

But the growth has not been without struggle.

The bank has had to undergo major restructuring over the past decade, slashing costs and shrinking its investment banking division, where profit tends to be more volatile, in favour of the more stable wealth management business.

WHY SELL NOW?

GIC alluded to the vast changes that have overtaken the industry as well, with chief executive Lim Chow Kiat saying in a statement last Tuesday: "GIC made the UBS sale despite the loss, because conditions have changed fundamentally since GIC invested in UBS in February 2008, as have UBS' strategy and business."

CIMB's Mr Song noted that GIC is likely reviewing its portfolio for the new year - its financial year ended on March 31 - and so it should come as no surprise that it is offloading some investments now.

Just a day after announcing the UBS stake sale, GIC fully divested its 3.4 per cent stake in Swiss dental equipment maker Straumann Holding, which likely made it a profit of more than 600 million Swiss francs.

Said Mr Song: "Last year was a good year for financial markets, and likely a good year for GIC, too, so it is timely for it to review the portfolio and see whether it needed to reposition itself."

Dr Jain added: "GIC probably expects better investment returns in some other sectors."

A sovereign wealth fund with a long-term horizon, such as GIC, has a comparative advantage in making illiquid, alternative investments in sectors such as real estate, infrastructure, and private equity, he noted. "They could also make larger investments in emerging markets and long-term technology plays."