GIC must navigate challenges even as it celebrates achievements: PM

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, Prime Minister Lee Hsien Loong said yesterday.

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, he 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 the 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 the country to build up a valuable nest egg to make up for its 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.

In his speech, PM Lee outlined future challenges 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.

Already, heightened tensions between the United States and China are affecting global supply chains, with countries rethinking the free flow of trade and investments, and putting new emphasis on supply chain security and resilience, said PM Lee.

"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."

A virtual summit between US President Joe Biden and Chinese President Xi Jinping yesterday 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 pressure on the Government to draw more from its reserves instead of raising taxes to finance higher spending.

His hope is 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 which have been key to GIC's success, including 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 noted how GIC was shielded from political interference from day one - the best people were chosen, 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.

The Government's prudent fiscal stance - its commitment to saving for the future and drawing down on reserves only under exceptional circumstances - also enables GIC to take a long-term view of investments, he 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."

  • Key milestones

  • 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, 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.

    Choo Yun Ting

A version of this article appeared in the print edition of The Straits Times on November 17, 2021, with the headline 'GIC must navigate challenges even as it celebrates achievements: PM'. Subscribe