20140625 Government must disclose billions in CPF/GIC foreign exchange losses and market value of investments

It has taken decades but the government has recently confirmed CPF monies are managed by GIC. “As GIC primarily invests outside of Singapore”, CPF monies are therefore subject to foreign exchange (forex) movements which are beyond GIC’s control.

The Singapore currency has been appreciating against almost all currencies during the last decade. As such, there are billions in unrealised forex losses. The government has tried very hard to prevent its disclosure.

The PAP government would of course insists this is merely speculation. Why then doesn’t it quash the speculation with transparency at GIC? The answer is ‘it cannot’ because transparency will prove the above is not speculation!

Instead, we have ‘clarifications’ by Minister Tan Chuan Jin, Lim Swee Say, DPM Tharman, MP Hri Kumar, etc which are mostly general statements unsupported by relevant facts. The mainstream media, as usual, has been roped in to help sell snake oil to a well educated and sceptical public. The number of frustrated and shortchanged CPF members has been increasing.

Government must cease misleading CPF members

The government must not continue to mislead CPF members by emphasising our “CPF funds are invested in risk free SSGS” because it knows the ultimate destination is GIC which invests overseas. The geographical distribution of CPF monies is shown below. CPF funds are not risk-free.


GIC undertakes huge forex risks

The returns from overseas investments may be higher but there are also huge forex risks. Singapore’s ‘phenomenal’ growth during the last decade is a double-edged sword – our returns have been affected by our strengthening currency.

Since 2004, the US dollar has fallen $1.7 to $1.25 (about 26%),

the Malaysian Ringgit from $0.45 to $0.39 (about 14%) and

the Euro from $2.1 to $1.7 (20%) against the Singapore dollar.

You can view historical exchange rate of other currencies @ link

But GIC refuses to disclose huge forex losses

Since almost every currency has fallen against the Singapore dollar, there are clearly huge forex losses in GIC’s investments. Assuming the Singapore dollar has appreciated 15% on average against other currencies, S$100 billion invested overseas would be worth only S$87 billion from a decade ago.

Government prevents disclosure of forex losses

GIC could have easily disclosed its nominal returns in Singapore dollar. After all, CPF members will eventually withdraw in the local currency.

Instead, “the Client (government) instructed GIC to disclose nominal returns only in US$ in the GIC Report”. The government’s explanation is “This is to avoid confusion by the readers of the report to compare GIC’s returns in Singapore dollars with the returns of global market indices in US dollars”. This is another half-truth.

The “Client (government)” comprises political leaders and these same politicians are GIC directors.

Can the government (political leaders) instruct themselves not to disclose nominal returns in the local currency?

The government could have provided both figures – one in US$ and the other in S$. Why does it choose to use the avoidance of confusion as an excuse not to do so? Because the depreciation of the foreign currency lowers the nominal returns in the local currency. (see table below)

INVESTMENT 100 150 1.5

Investments must be marked to market

Mark to market accounting is the gold standard for preparing financial statements. It reflects the current/fair value of an investment eg GIC bought UBS shares at 47.7 CHF (converted from UBS notes after earning CHF 2 billion from coupon rate) and the fair/current value should be about 17 CHF. The mark-to-market value shows the investment is only worth 35% of its original value. (17 CHF divide by 47.7 CHF) Even after taking into account the coupon rate gain of CHF 2 billion, the UBS investment is still sitting on paper losses of about CHF 5 billion.

GIC sent to ICU by UBS investment

GIC’s performance is not as stellar as made out to be by the government. In fact, it appears to be punting with CPF monies and has been simplistic and even reckless! In 2007 when GIC invested in UBS notes with a coupon rate of 9%, it ignored the unfolding US subprime mortgage crisis and sank S$13.75 billion (CHF 11 billion, exchange rate about 1.25) of CPF monies into UBS. Why should the world’s largest manager of private wealth pay a 9% coupon rate? UBS appears to be having the last laugh.

In 2007, total CPF members’ balance was $137 billion. (chart below) A prudent fund manager would not have sunk 10% of total funds into a single investment. GIC was totally reckless. The board of directors should have been held accountable.

CPF in trouble, needs more funds to generate revenue

The problem does not stop at UBS’ paper loss. UBS dividend in FY 2013 was CHF 0.25, the highest since 2007. At this dividend rate, GIC will only be able to recover its entire investment in…about 156 years. Including opportunity costs, the right thing to do is fire those who approved the investment.

GIC has committed about S$11 billion in UBS to earn a dividend rate of less than 0.01 %! (CHF 2 billion (S$2.5 billion) gain taken into account) Why must fund managers be paid millions for such returns?

Question: Will the government come clean and just tell CPF members how many ‘UBS type’ investments are GIC holding?

GIC thought it made a killing but got CPF members ‘killed’

The objective in the UBS investment mirrors the shortcuts used by the PAP government. The UBS notes paid a 9% coupon rate and by paying CPF members only 2.5% to 4%, the government thought it could easily pocket the difference. The government should have known there is no free lunch. Despite historically low interest rates, UBS has managed to see only darkness at the end of the tunnel.

CPF members’ S$11 billion in UBS is effectively earning next to nothing. There are likely to be other ‘UBS type’ investments unless the government confirms otherwise. More CPF monies will be legislated into GIC. CPF members are now paying the price for GIC’s failure.


That there are billions in forex (paper) losses in GIC’s investments is not speculation but common sense. The government should not continue to prevent its disclosure.

Minister in the PMO Lim Swee Say recently confirmed “many investments had been lost during the global financial crisis”. If GIC was a long term investor, it should not have panicked during the financial crisis and incurred billions in losses for CPF members. The UBS investment has shown GIC to be reckless with CPF monies. GIC now requires even more money from CPF members.

The government is not serving CPF members’ interests by withholding information which should have been in the public domain ie accounts of GIC. Transparency demands the government come clean by marking to market the values of ALL CPF members’ investments. These investments do not belong to GIC. Members have the right to this information.

‘Clarifications’ with general statements by ministers and MPs will not be accepted by an increasing number of frustrated and shortchanged CPF members.

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10 Responses to 20140625 Government must disclose billions in CPF/GIC foreign exchange losses and market value of investments

  1. James says:

    Thank you Philip, for another informative write-up. Really appreciate your efforts to inform more Singaporeans.

  2. Chris K says:

    While I can understand you are getting at CPF and GIC (so am I) but your article contains quite a number of flaws.

    The effect of FX cannot be viewed in isolation to the total portfolio. To simplify, total returns = valuation of investments + dividends + hedged FX position + unhedged FX position. If GIC reports a return of 8.8% in S$, this would have included the enormous FX loss that you alleged. Now the govt has sneakily changed the reporting from S$ terms to US$ term, but it is no rocket science to determine that if that 8.8% is in US$, given a 2% depreciation of US$ against S$ then the rate od return which include FX valuations would be 6.8%.

    On your UBS assertions. I agree that GIC got its ass torched but the risk is not 10% of GIC portfolio – it is probably no more than 5% because you have not included past reserves retained in GIC and the proceeds of the issuance of standard SGS to bond investors. The latter ought to be at least 70b in 2007. 5% is a large but not excessive exposure. There are other flaws in the UBS investments but leave it.

    Finally CPF monies are invested in SSGS. The govt has no legal obligations to seek CPF approval or inform CPF how the monies are used. Equally, CPF is immunised from losses in GIC because CPF is not the investor in GIC. Ofcos, if the losses are big enough, the Govt can always seek to pay CPF with taxes from citizens. That is more a political than financial question.

    Feel free to drop me a line if u wish to take this further.

    • phillip ang says:

      I think we can agree whatever ‘flaws’ in my article can only be corrected by the government because it has all the right figures. Its silence speaks lots about what’s not right at the CPF/GIC.
      The truth is whether UBS investment is 5, 10 or 15 per cent of GIC’s portfolio, NOBODY knows. Your take on the past reserves may be just as questionable as my take on the whole UBS investment due to the complete lack of transparency. 🙂
      The CPF member should not be seen as separate from a taxpayer. CPF monies are ‘immunised’ only in words because any action taken to guarantee the CPF member from GIC’s losses will result in CPF members being penalised in other ways such as paying higher taxes.
      Legislations on CPF are implemented to prevent the disclosure of facts. The status quo should not be maintained.
      I view the politics and finance of CPF as intertwined.

  3. jc says:

    “The truth is whether UBS investment is 5, 10 or 15 per cent of GIC’s portfolio, NOBODY knows.”
    haha based on your statement in your blogpost, you sounded like you very cock sure. i find it sad that you think GIC’s investment decision as “simplistic”. anybody in the industry knows how much work GIC does before entering an investment. if anything, decision making at GIC leans towards over-complicated (in my humble opinion)

    that aside, I agree that there should be more transparency (e.g. does return include loss/gain in fair value of assets – please bear in mind this will be very tough to implement, ask the auditors). but that should not compromise the ability of GIC to operate productively. anyway, guessed you are not in the investment management industry. most professionals in the industry know GIC as one of the most risk-averse houses even among the sovereign funds (some examples, 1MDB, EPF,etc – look at their investment philosophies and you will know the difference)

    • phillip ang says:

      Hi jc
      Since you have agreed there should be more transparency, has it not occurred to you how GIC operates is totally unacceptable? When the government goes all out to prevent transparency, does it not occur to you something is really wrong somewhere? GIC’s image it’s all PR. Enron, Madoff, Lehman, etc comes to mind. Why do you, or anyone else, simply prefer to take the word of politicians at face value when it involves hundreds of billions? If you look at other pension funds, they are unafraid of transparency. But GIC – to date, it has listed nothing in its portfolio. Look at the announcements in its ‘newsroom’ objectively – does it not shock you? All the information on its website you can read and re read but at the end of the day, you will know nothing about GIC with all the irrelevant information.
      Since you are the expert, and I am not, I hope you could do Singaporeans a big favour by questioning the PAP government with the aim of getting relevant answers leading to transparency.
      In the real trading world, things are different. I personally witness Barings collapse during my local days in the exchange. Image can be cultivated. 🙂

  4. Isupportyou says:

    I agreed with Philip, it is difficult to say whose analysis is right or wrong without those important parameters which are unknown as you all do not have them. It is like solving indeterminate equations and therefore there is not fixed or right answers. But honestly, both you 2 are superb.

  5. Francis Lim says:

    I like what I read from Phillip’s blog and also from Chris K’s responses (including other blogs). I’m in that generation that I would have received all my CPF savings if not for the PAP government keeps moving the withdrawal goal posts. I know things isn’t right with the government keep moving the goal posts, but just don’t know where to pinpoint the issue. Your writings and responses to them helps me to understand a little deeper of the issue at hand. Your arguments are gentlemanly & intellectually acceptable unlike some responses that throws insults and vulgarities which would be offensive. Thank you both for your dedication in helping those, like me, who can’t figure it out but has this gut feel that something isn’t right with our CPF.

  6. phillip ang says:

    🙂 Am also helping myself. My friends will also need their money in a few years time but guess won’t be able to withdraw as goal posts will be closer to 200k for the OA and 50k plus for MA. I don’t think it is a coincidence when members’ CPF funds keep flowing into GIC and government help schemes also channel more CPF money into GIC.
    The govt can only answer CPF members with transparency. It is also our right and the govt is not doing anyone a favour.
    Don’t assume you cannot contribute. Everyone sees the issue from a different angle. Some contribute their experience, others opinion and data. 🙂

  7. auntielucia says:

    Philip, unless u r 100% sure that all GIC’s investments are in listed securities, y do u make repeated calls for stuff to b marked to market? Haha, you are not a business/property valuer are u? 🙄

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