SINGAPORE - Sovereign wealth fund GIC must continue to anticipate and prepare for challenges ahead, such as economic uncertainties and climate change, as it celebrates its achievements to date, said Prime Minister Lee Hsien Loong on Tuesday (Nov 16).

In the 40 years since its formation, GIC has become one of the best regarded sovereign wealth funds in the world while staying within the risk limits set by the Ministry of Finance, PM Lee added.

"Since inception, it has generated steady returns on our reserves, with annual returns averaging more than 5 per cent above global inflation and this has significantly grown the international purchasing power of our reserves," he said.

PM Lee, who is also chairman of GIC, was speaking at the fund's 40th anniversary dinner at Shangri-La Hotel Singapore.

He said GIC has protected and enhanced the value of Singapore's reserves, enabling it to build up a valuable nest egg to make up for the country's lack of natural resources.

These reserves have become a strategic resource that has not only seen Singapore safely through critical moments, but has also played an important role and provided a steady stream of income to the government of the day, he added.

Also at the dinner were GIC chief executive Lim Chow Kiat, Senior Minister and GIC deputy chairman Tharman Shanmugaratnam, and former Singapore president and GIC special adviser Tony Tan Keng Yam.

In his speech, Mr Lee outlined future challenges that GIC must navigate - economic uncertainties including the impact of prolonged low interest rates and record fiscal deficits, inflation, as well as climate change.

Geopolitics, too, will play a big role moving forward, he pointed out.

"Already heightened US-China tensions are affecting global supply chains. Countries are rethinking the unfettered free flow of trade and investments, and putting new emphasis on supply chain security and resilience," PM Lee said.

"This is sensible, but downsides have to be seen too and considered, and if carried to excess, it can easily lead to deep bifurcation of global trade and technology. Beyond that, the tensions and rivalry between the powers could cripple markets and investments, even short of full-scale conflict."

The virtual summit between United States President Joe Biden and Chinese President Xi Jinping on Tuesday was therefore an encouraging first step towards stabilising US-China relations, PM Lee noted.

He also acknowledged the evolving domestic conditions in Singapore - social and healthcare spending will continue to grow, alongside the pressure on the Government to draw more from its reserves instead of raising taxes to finance higher spending.

He expressed his hope that new generations of Singaporeans will retain the same formula that has worked well for the country and GIC thus far - to treat the reserves as a rainy-day fund and continue to grow the nest egg whenever they can, and thus perpetuate its prosperity and resilience for many years to come.

PM Lee highlighted several factors that have been key to GIC's success, including its adaptation to the changing financial landscape and how it has remained anchored to its core values of prudence, respect, integrity, merit and excellence.

"But just as important to GIC's success are the political and fiscal conditions within which GIC operates, the context which enables the organisation to function properly," he said.

PM Lee noted how GIC was shielded from political interference from day one - the best people were chosen and proper governance structures were put in place, and the management team was entrusted to make investment decisions objectively and professionally.

"On its part, the political leadership stands by GIC and defends GIC's ability to make investment decisions independently, so long as it has acted properly and competently, and it stands by GIC even when the ex-post outcomes turn out unfavourably, which will happen from time to time for any serious investor," he said.

At the same time, the Government's prudent fiscal stance - its commitment to saving for the future and drawing down on reserves only under exceptional circumstances - enables GIC to take a long-term view of investments, PM Lee added.

"This has enabled GIC to build long-term partnerships, and take on calculated risks that only long-term investors can accept, and both of these are key strategic advantages."

GIC must remain bold and build upon this success thus far, constantly innovating and refreshing itself, develop new approaches to managing investments in a more challenging global environment, while staying true to its purpose and core values, PM Lee said.

"I have every confidence that GIC will rise to the challenge, and continue to deliver on its mission, just as it has done for the last 40 years. This is how it will become the leading global long-term investor that it aspires to be."

Sovereign wealth fund GIC is one of the three investment entities in Singapore that manage the Government's reserves, along with the Monetary Authority of Singapore (MAS) and Temasek.

The Straits Times looks at some of GIC's key milestones over its 40 years.

1981

GIC was set up in May 1981 to manage Singapore's foreign reserves, against the backdrop of the rapid growth of the Republic's foreign reserves in the 1970s.

Originally known as the Government of Singapore Investment Corporation, it was the brainchild of Dr Goh Keng Swee, then Deputy Prime Minister and chairman of MAS, to invest the country's surplus reserves for better long-term returns.

Its inaugural board was chaired by then Prime Minister Lee Kuan Yew and included other Cabinet ministers.

1987

Black Monday - Oct 19, 1987, when global stock markets crashed - was GIC's baptism of fire. But its diversified portfolio was able to weather the turbulence in the financial market.

1990s

Over the decade, GIC ventured into new markets and advanced its real estate and private equity capabilities, which reflected its willingness to explore new sources of returns for diversification and to adapt to unfamiliar investment situations.

In particular, it pivoted to move into emerging Asia, a strategic response to the transformations in the region, especially in China. This gave it a head start in the fast-growing region.

The Asian Financial Crisis in 1997 did not discourage the company from investing in the region - rather, it stepped up efforts to co-invest with regional partners.

Its real estate and private equity investment groups also grew rapidly during this period.

Early 2000s

Reviews on GIC's investment policy and strategy found that the reserves managed by the company should be viewed as not just a contingency fund, but also a financial endowment for Singapore.

This meant that GIC's portfolio could be less liquid and not so tied to cash and bonds, which gave it more room to invest in other asset classes, paving the way for it to pivot to more public and private equity and real estate.

2008

The Net Investment Returns framework was introduced in 2008, under which the Government can spend up to 50 per cent of the long-term expected real returns on the relevant assets. It applied initially to MAS and GIC, with Temasek included later in 2016.

The framework expressed a spending rule aimed at providing for present and future generations of Singaporeans, underlining the endowment principle of the reserves managed.

2010s to 2020s

In 2011, Mr Lee Kuan Yew retired as GIC chairman, with Prime Minister Lee Hsien Loong taking over.

The decade also saw GIC enter a new phase under the leadership of Mr Lim Siong Guan, a former head of the civil service, who was group president of GIC from 2007 until he retired in 2016.

Amid a changing investment environment with an influx of large institutional investors, GIC transformed from a largely passive to an active investor aiding its portfolio companies in growing their businesses.

It has assets in over 40 countries and offices in 10 cities today, with more than 1,800 employees globally.