The Government's view is that GIC and Temasek Holdings have performed creditably in challenging market conditions, Second Minister for Finance Lawrence Wong said in Parliament yesterday.
He was responding to a question from Workers' Party Non-Constituency MP Leon Perera, which touched on, among other things, the wider gap between GIC's nominal return and its reference portfolio return over the past five years, compared with the past 20 years.
Mr Wong said: "Increasingly stretched valuations in developed market (DM) equities have promoted reduced allocation to this asset class in the GIC portfolio in recent years.
"This has resulted in lower returns compared with the reference portfolio over the five-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."
He added that it was not meaningful to compare GIC and Temasek's returns and expenses with those of other sovereign wealth funds, as entities have different mandates, risk profiles and operating constraints.
Mr Perera, in following up, asked what conditions would prompt the Ministry of Finance (MOF) to intervene if the gap between GIC's reference portfolio returns and actual returns continues to widen.
He also questioned GIC's decision to reduce its allocation to DM equities "in such a big way" over 2010 to 2012, and then gradually until last year.
In this way, GIC missed "the surge in DM equities within the last five-year period" when it could have taken a strategy to generate short-term returns, Mr Perera said.
Mr Wong, in his reply, said: "If, on a continuous basis, there is underperformance by GIC, then certainly, MOF and the Government will have to review fundamentally what has gone wrong, and whether the strategies that GIC has undertaken are indeed the right ones."
He also said it was easy to judge GIC's move in hindsight.
"The assessment by most investment entities is that DM equities are indeed high in valuations and there is considerable uncertainty in DM equities today.
"One can take a short-term view... but GIC is not a short-term player. In a situation where there is market exuberance, like now, GIC correctly, we think, takes a view that is more conservative and reduces its weightage on DM equities."