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Frequently Asked Questions About Our Reserves – GIC & Temasek have fully recovered from the global financial crisis, CPF monies are safe
Following feedback received from the public, the Ministry of Finance has expanded its list of “Frequently Asked Questions” on the protection of Singapore’s reserves. The ministry said the information was updated as part of a regular review to better explain policies.
Available since 12 August 2011, the new questions highlighted in the FAQ posted on MOF’s website include: whether the Government of Singapore Investment Corporation (GIC) and Temasek Holdings lost their value as a result of the financial crisis? Has the President’s approval ever been sought to draw on past reserves? Is the pension funds of Singaporeans or CPF monies are safe?
GIC and Temasek have fully recovered from the global financial crisis.
During the financial crisis, the portfolios managed by GIC and Temasek had suffered declines in their portfolio valuesin line with global market declines. However, these declines came after much greater increases in their portfolio values in the preceding five years. For example, Temasek’s portfolio increased by S$114 billion over the preceding five years ?from the time the market cycle commenced in March 2003 to March 2008.
Taking the cycle as a whole from the start of the crisis and through the recovery ?both GIC and Temasek have done creditably in comparison to their international peers among major global managers. They have fully recovered their declines in portfolio values occurred during the crisis. More importantly, both GIC and Temasek have earned good returns over longer periods(see Q6).
The long-term investment orientation of GIC and Temasek has allowed them to tolerate short-term volatility and ride out market cycles, in order to achieve long term gains. To evaluate their performance, we therefore have to look at how they performed over the long term, rather than in the short term where their performances would be influenced by the immediate market cycle. Moreover, they have to be evaluated based on changes in their overall portfolio values rather than by how much they have made or lost on individual investments.
GIC
GIC’s mandate is to achieve good long-term returns, to preserve and enhance the international purchasing power of Government reserves. As a rule, GIC’s investments are outside Singapore and not in Singapore companies or instruments.
GIC publishes an annual report on the performance of the Government’s portfolio. The information below is extracted from its latest annual report (“Report on the Management of the Government’s Portfolio for the Year 2010/11”, released on 26 Jul 2011).
Over the 20 years to 31 March 2011, the real rate of return on the GIC-managed portfolio, i.e. in excess of global inflation, was 3.9%. The 20-year annualised real rate of return metric is the key focus for GIC, which matches its mandate and investment horizon of 20 years. A 20-year period is appropriate as it spans a few business cycles and hence encompasses a number of market peaks and troughs.
GIC also discloses the nominal rates of return over 5-year, 10-year and 20-year periods. These time frames give a sense of the ongoing performance of the portfolio. The 5-year and 10-year rates of return reflect an intermediate measure of GIC’s longer term performance.
The chart below shows the portfolio’s nominal rates of return over the 5-year, 10-year and 20-year periods in USD terms. Two composite portfolios are included for reference. These composite portfolios are generally accepted as representative of the strategic asset allocation of large institutional investors such as pension and sovereign wealth funds. They are included to provide a perspective on GIC’s performance. However, it should be noted that the nominal rates of return on the 60:40 and 70:30 global portfolios are not benchmarks that determine GIC’s investment strategies.
Business Times: All CPF monies safe, will be paid back: MOF (12 Aug, Pg 4)
By CONRAD TAN
(SINGAPORE) The Republic’s Central Provident Fund (CPF) savings are backed by the full resources of the Singapore government, which has far more assets than liabilities and can fulfil its obligations easily, the Ministry of Finance (MOF) has said in an update on its website.
‘All CPF monies are safe,’ MOF said, in its answers to frequently asked questions on the protection of Singapore’s reserves. ‘CPF monies are invested in bonds that are issued and guaranteed by the Singapore government. The full resources of the government are backing this guarantee that CPF monies will be paid back.’
The government’s assets ‘far exceed its liabilities’ – including its CPF liabilities, it added.
‘There is no net government debt. Singapore is in fact a net creditor country, not a debtor country.’
None of the funds raised from the government’s borrowing are for spending; in fact, under the Constitution, the government cannot spend money that it raises from selling debt securities, MOF said.
‘All borrowing proceeds are therefore invested. The investment returns are more than sufficient to cover the debt servicing costs.’
The government’s strong reserves position is illustrated by the investment returns that are made available for spending on the government budget, MOF said.
That net investment returns contribution, as it is known, is currently about $7 billion each year.
That contribution is drawn from returns on the government’s net assets – after deducting all its liabilities, including CPF monies – not gross assets, MOF said.
That means that the government’s net assets produce ‘significant returns’, it added.
‘It should be further noted that, as stipulated in the Constitution, the net investment returns contribution recorded in the government budget only comprises up to 50 per cent of the returns earned on the reserves.
‘If the government’s assets had not been adequate to meet its liabilities, there would be no contribution from the investment returns on reserves in the government budget.’