20140813 Oversight of GIC urgently needed by parliament

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.

Questions:

– 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?
etc.

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.

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8 Responses to 20140813 Oversight of GIC urgently needed by parliament

  1. Xmen says:

    The selection of fund managers should be transparent as there is a lot of money involved. It is very tempting for politicians to meddle in the selection process (e.g. AIM.) Singapore has a lot to learn from Norway in corporate governance and transparency. It is no longer a third world country.

    • phillip ang says:

      A fund manager receiving $5 billion from GIC with a 2% management fee earns $100 million annually. If he is compensated another 20% of profits for returns above the hurdle rate, his income is hard to imagine. Hedge funds will take excessive risks because they will get insane rewards for performing but losses will be borne by GIC. They just move on to manage other funds.
      GIC cannot afford transparency and has been accorded a private limited status. It doesn’t want the public to know of all these risky investments, frequent losses and very high fund management costs. (including directors’ remuneration)

      • Xmen says:

        Yes, Hedge fund managers are like gunslingers. There is so much incentive for them to gamble client’s money to maximize their personal gains. The last time GIC/Temasek gambled, during the GFC, they got duped and lost big sum of money! The people running GIC/Temasek are mostly political appointees, they are so naïve and easily influenced and are no match to the Goldman Sachs of the world.

  2. Anonymous says:

    The more you dig the more you worry for the country and its citizens. You are doing a sterling job. Keep it up. Together with Roy, Leong Sze Hian and other patriots the exposures will eventually bear fruit. The only regret is the complete lack of will and effort by the WP. The questions you raise could have been asked by their MPs.

    • phillip ang says:

      I have been thinking about the silence from the WP which does not serve their constituents. All this talk about a first world parliament has been a disappointment. WP could have activated their supporters to Hong Lim Park and that would have made a VERY big difference. Kenneth Jeyaretnam would have done a wonderful job in Parliament. I don’t think one needs to be a finance expert to understand what’s really been happening with our CPF and GIC. Just look at GIC’s FAQ page – all these length explanations should have raised suspicious. The government has hidden too much relevant information from the public. Hopefully WP will be able to get some answers in Parliament. Soon. I will write an appeal to WP’s supporters on social media.

      • Xmen says:

        I totally agree that WP needs to boot their chairman. He is old school and plays safe politics. It works in the old days but we are now in the 21st century for goodness sake. Singapore is no longer a third world country!

  3. wongcheokwan says:

    2012 (and yearly estimates) Singapore spends $7.6B to make 20,000 foreigners into citizens,
    subsidised their housing and subsidised foreign students.This is MAD n CRAZY.

    ST.TIMES 13Aug2014 p.A19 propagates a population of 10million.Assumig population is 5million
    now.We would need to pay for another 5million.Total cost=(5,000,000 divide by 20,000) X $7.6B=
    $1,900,000,000,000…THIS SHOUD BE OUR RETIREMENT MONEY.Who says money no enough?

    Don’t get me wrong.I love meritocratic foreingners who pay their share just like new American citizens have to shoulder their portion of national debt.We have been told :there is no free lunch,
    subsidy is bad as it leads to insolvancy like in some countries.

  4. psle mathematician says:

    Is planning to increase population and spending $1,900,000,000,000 to buy foreigners MERITOCRATIC or mad n crazy? This is equivalent to 237.5 “Pioneer Packages” of $8 B.
    Give family money to outsiders? might as well start by contributing cpf to them.

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