20141020 Mainstream media gloss over subpar GIC (CPF) investment $269 million capital loss

I refer to ST’s “GIC sells London property to Norway sovereign fund for $1.2billion” and GIC’s “GIC divests its 100% interest in the Bank of America Merrill Lynch Financial Centre (MLFC)”.
(I’m just expanding on this issue)

Both are simply announcements which have not disclosed the fact that the 7-year GIC property investment has yielded almost zero returns after costs.

In the ST article, it states the selling price of “£582.5 million (S$1.2 billion)” based on the recent exchange rate of about 1GBP=$2.06 and purchase price of “£480 million” in 2007. But why has the purchase price not been converted into Singapore dollar?

GIC had actually bought the property in June 2007 when the British pound was very strong against our currency at about 1GBP=$3.06. When converted into local currency, the purchase price would be a whopping $1.469 billion. GIC had therefore made a capital loss of about $269 million, a huge embarrassment to the government.

From June 2007 to October 2014, the British currency lost 33% against the Singapore dollar.

GIC would of course have made some rental gains which is nothing to shout about – the property was bought near the top of the stock market cycle and rental yields and property prices are inversely correlated. Any net rental gains would have probably been offset by the capital loss and transaction costs. Our CPF investment yielded close to nothing.

Shouldn’t the headline then read “GIC’s $269 million loss in UK property investment offset by net rental gains, took huge risks for peanuts”?

The ST has clearly tried to make the investment look fantastic by stating “GIC bought the 585,000 sq ft London office property from Merrill Lynch in 2007 for £480 million, beating investors such as Syrian-born tycoon Simon Halabi and Irish investor Derek Quinlan.” What’s so great about an investment yielding close to nothing/fixed deposit returns? The Syrian tycoon and Irish investor must be the ones having the last laugh and are glad that GIC had beaten them to the ‘fantastic’ investment!

When GIC bought the Merrill Lynch office building in 2007, GIC Real Estate’s president Seek Ngee Huat had described the property as “a strategic acquisition which meets our investment objective of maintaining a diversified portfolio of long-term assets across all property sectors in gateway cities around the world”. Seven short years later, “long-term” investing is no longer fashionable and its “strategic acquisition” is quickly disposed of because it has a new strategy?

Our $1,468,000,000 CPF investment has yielded almost nothing for 7 years. Is this the reason why our CPF returns continue to be the lowest in the world?

GIC appears to have a very simple strategy to profit from our CPF – it invests in higher-yielding foreign assets, pay CPF members low returns and keep the balance for itself. It has ignored forex risks because the PAP has accorded GIC ‘private limited’ status which enables it to be unaccountable to CPF members.

Investing $264 billion of our CPF in a foreign currency contradicts the government’s policy of gradual appreciation of the local currency. Why would any government invest hundreds of billions of dollars knowing full well its policies will adversely affect its investment returns in future? Don’t CPF investments have to be eventually converted to Singapore dollar to be returned to CPF members?

But with the legislation of more than $200,000 Minimum Sum (OA and MA) by next year, it appears the PAP never had any intention of converting CPF investments into local currency and return CPF monies to their rightful owners.

It is a fact that there are tens of billions of dollars in CPF investments which are yielding ‘peanut’ returns/underwater. To allay CPF members’ fear and suspicions that all may not be well at the GIC, it should disclose how CPF members are paid – if there are huge capital gains from other investments, other investments yielding extremely high returns, etc GIC should disclose them to the public.

Transparency is key to citizens’ trust without which CPF members will continue to suspect there are many more subpar CPF investments in GIC.

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10 Responses to 20141020 Mainstream media gloss over subpar GIC (CPF) investment $269 million capital loss

  1. Xmen says:

    A couple comments –

    – You can’t include rental yield without also accounting for the maintenance cost.
    – After adjusting for inflation, the ‘real’ return is certain to be negative. Inflation from 2007-2013 are 2.1% 6.5% 0.6% 2.8% 5.3% 4.5% 2.4% (world bank). Some even if GIC gets back the ‘same’ amount, it has lost a quarter (25%) of its investment!

    Knowing how Singapore works, the performance of GIC should be a concern to every Singaporean. They always trumpet gains but downplay or even hide loses. So if they have nothing to crow about in recent years, you know they are in deep doo-doo.

    • phillip ang says:

      : ) Don’t want to go too detail into this to prove my point that something is not quite right with disclosure. There are many issues with GIC that need to be highlighted. Soon. Thanks. : )

  2. Confused says:

    I believe you are both having either fund management experience or accounting practice before.

    As a layman, don’t the GIC need to hedge their foreign investment against the forex risk? if the answer is yes, the mistake made is worst than an amateur trader and the top money paid is down to the drain.

    It appears that the fund managers in GIC don’t even have basic technical trading knowledge such as triple top, double top, breaking of neckline and always jump in at the high and sell it at the low. There was never a contigency plan of cuttung loss, it appears like it is all or none which never happens in trading world, I supposed.

    A lot of people did not realise, if you lose 50% of your initial investment, you need to make 100% with your balance investment to recoup your loss, break even.

    From your last few posts, it only points to one thing, the fund managers are no pro, they are probably novice traders at best, I hope I am wrong.

    • Xmen says:

      GIC is not your typical mutual fund. It is a *state* fund investing in foreign assets. The state also controls the exchange rate. So there is no reason for GIC to hedge against forex risk.

    • phillip ang says:

      GIC is not concerned with technical analysis at all. It is also not bothered if market has rallied for more than 5 years on a mountain of debt.

  3. Confused says:

    Correction: “As a layman, my understanding is……”

  4. Confused says:

    There is another thing that is puzzling me.

    In the past, we understand that GIC is tasked to take on foreign investment outside Singapore while Temasek will only invest domestically.

    Recently, we understand that Temasek has set up oversea office in US, presumably in New York.

    If your posts that GIC has been making losses left and right (noticeably forex loss), why do they want to risk Temasek again?

    As a layman, without actual facts and figures we may tend to draw our own conclusions which may not be the true but otherwise we really cannot offer ourself a sensible answer.

    or Could it be that, GIC, after all the losses you have mentioned, is now running low with balance capital? and On the other hand, Temasek, which has been making easy money without much local competition is now fatter and is able to take a few and further knocks overseas? Or the Temasek thinks that after all the lessons learned from the GIC failure, if there is such, they are now better prepare to recoup for GIC or in Chinese, “回本’?

    • Xmen says:

      Given the size of GIC and Temasek, they have no choice but to invest overseas. Singapore is a small economy and any significant GIC and Temasek investments locally will distort the market. It has already happened.

    • phillip ang says:

      Am just a layman like you but am very interested in the CPF issue because I have vested interest.
      We must be wary of what’s been happening because even our MPs do not know the exact amount managed by GIC!
      The government did not consult Parliament when Temasek started taking on additional risks overseas and it is actually duplicating GIC’s role. Singapore is too small for Temasek and local companies do not have the ‘growth’ potential unlike foreign ones.
      GIC and Temasek can never learn from failure because failure did not warrant any accountability. After the 2007 financial crisis, no director has been sacked. Not talking about millions in losses but billions.
      Even you are able to see GIC has no contingency plans in trading.
      Many investments appear to be speculative and likely a very desperate attempt to recoup past losses. From 2009 to June this year, CPF balance increased by $98 billion. http://mycpf.cpf.gov.sg/CPF/About-Us/CPF-Stats
      Why does GIC need new capital of almost $100 billion? Something is not quite right here.

      • Xmen says:

        Actually, HC lost her job after losing billions during the GFC. But once things calmed down a little, she was back in her old job. No one has enough political clout to force her out. LOL.

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