I refer to “GIC beefs up real-estate portfolio with US$8.1b (S$10.58b) purchase of Ind Cor”. (BT, 3 Dec)
Blackstone had plans for IndCor’s IPO which valued IndCor at about US$8 billion before GIC stepped in with its US$8.1 billion offer. By taking a 100% stake, should the market for industrial property turn sour, it would be impossible for GIC to exit its investment without huge losses. In fact, GIC does not have an exit strategy as is evidenced by its biggest investment – UBS.
Four years after GIC’s ill-timed $14 billion bet on UBS, Tony Tan, GIC ex-deputy chairman, said “we look to continue to hold on to our stakes in UBS and Citigroup for many years to come”.
It’s easy for Tony Tan to say the investment is “for many years to come” because it is not his personal funds/PAP’s money. Tony Tan could have meant forever.
Is this how GIC invests our CPF?
The IndCor deal is similar to GIC’s investment in the Bank of America Merrill Lynch Financial Centre (MLFC) in 2007 – both deals were struck after a huge run up in asset prices. After rental returns were offset by exchange rate loss, the S$1.2 billion MLFC investment earned close to nothing after 7 years.
Although Blackstone had taken some risks when it bought assets at depressed prices, it appears GIC is taking a much higher risk ‘investing’ at inflated prices. Will this be a repeat of GIC’s MLFC investment?
GIC CIO Lim Chow Kiat: “Our patient capital allows us to benefit from holding investments that take longer to realise their potential.” If GIC really had patient capital, it would have waited for yields to rise after asset prices have fallen. From the above chart, GIC has clearly done the opposite.
“Patient capital” allows a fund manager to scour for underpriced assets, similar to Blackstone. “Patient capital” is not merely about holding underwater investments forever simply because there is CPF inflow into GIC every year ie since 2008, $20 billion of our CPF have been channeled into GIC every year. (page 111)
GIC’s real estate holdings accounted for 7% of its portfolio in March. With an estimated $400 billion of assets under management, it would mean GIC had already invested about $28 billion in foreign real estate.
As a proportion of GIC’s real estate holdings, IndCor’s $10.58 billion investment boggles the mind. Although some of GIC’s billion/multibillion bad investments/wipeout are now common knowledge, GIC has yet to disclose how it recouped its billion dollar losses. Is GIC betting bigger with our CPF to recoup previous huge losses?