After The Straits Times had published “GIC seeding start-up fund headed by ex-CIO: Report” on 3 April, there was not even a whisper in Parliament about the hundreds of millions/billions of CPF dollars/reserves being invested.
Recall Minister Vivian asking “How much do you want? Do you want three meals in a hawker centre, food count or restaurant?” in parliament in 2007. If parliament had to debate on a few million dollars increase in public assistance, shouldn’t it be concerned when a very large amount of public monies, likely to be in billions, is involved?
The “start-up fund” in ST’s headline actually refers to a macro hedge fund, as more accurately reflected by International Investor’s “Singapore’s GIC to seed ex-CIO’s Macro Hedge Fund” (1 April) or SWF’s “GIC to seed former CIO’s Macro Fund” (13 March). By leaving out “Macro” and “Hedge”, ST misleads readers into thinking it is a traditional investment fund when in fact the risks, and returns, are much higher.
On 13 June, The Wall Street Journal reported “Amid billions of losses, macro hedge funds search for ‘which way is up’”. According to the article, “many famous hedge-fund managers who seek to profit by correctly forecasting broad economic trends have turned in billions of dollars in paper losses”.
Long-Term Capital Management (LTCM), a very popular hedge fund in the 90’s, counted Nobel prize-winning economists Myron Scholes and Robert Merton as principal shareholders. Investors were not allowed to withdraw the $10 million invested for 3 years and no information on the types of investments was provided. (sounds familiar?) LTCM collapsed in 1998.
As for our CPF, members are not allowed to withdraw for decades, not just 3 years ie Special Account, Retirement Account. CPF goal posts have been regularly shifted till they are now outside the stadium. GIC’s opacity has always been a cause for concern.
GIC has wrongly assumed it is managing private funds of some $400 billion in CPF monies and our reserves. Although GIC has published its intention to fund an ex employee’s start-up to the tune of possibly billions of dollars, this should not be allowed without parliament’s approval.
– How much will GIC be investing in its ex-CIO Ng Kok Song’s macro hedge fund? ($500 million, $1 billion, $10 billion?)
– What is the compensation structure of Ng’s fund? (2%, 2 plus 20?)
– What is the leverage used in investing?
– How many hundreds of millions/billions of dollars have been paid to external fund managers?
– Is this the reason for our low CPF returns?
In 2012, Aje Saigal, left GIC and set up Nuvest Capital with “seed money from GIC”. He targeted to raise $1 billion by the first year of operations but again there was no mention of the amount invested by GIC. Parliament was also silent on the large amount of public funds invested.
On 21 Apr, it was reported that Ng’s fund “could be receiving significant seed capital from Temasek Holdings as well..”. This has yet to be confirmed by Temasek.
Unless transparency improves at GIC, the public will never know its actual performance. Over the years, GIC has received hundreds of billions of dollars from CPF members, land sales and budget surpluses. That GIC is now the 8th largest SWF is totally unrelated to its performance.
Although the returns from macro hedge funds are high, there are also very high risks. MOS for Finance Josephine Teo told Parliament that our increasing spending needs “should not drive GIC and Temasek to take on more risks,”. So why is GIC investing in hedge funds? Why has GIC raised its allocation to private equity from 8% to 9%? Contrary to what Josephine Teo told Parliament, GIC has assumed higher risks.
GIC should not continue to operate as if parliament did not exist. Parliament’s belated oversight of GIC is urgently required.