20141213 PAP should reveal the number of bad investments in GIC and our CPF losses

On 12 Nov, I highlighted one of GIC’s investments, Serco Group Plc, whose share price had fallen by 40% within 5 months. It recently fell by another 15%.

Within a mere 6 months, GIC has accumulated unrealised losses of about $140 million on a $260 million ‘investment’. Bad luck, wrong timing or just tikam-tikam?

Below is the chart of Serco Group PLC showing the GIC’s purchase of 35 million shares valued at about $260* million in June and July.

I would agree the amount of unrealised loss may be insignificant to GIC which manages funds of about $400 billion. What is troubling is the percentage of its loss despite all the due diligence conducted.

One cannot simply trivialise this ‘small’ amount (to GIC) because we do not know the total number of bad investments in GIC’s book. By the time GIC decides to be transparent, there could possibly be a solvency issue.

The PAP says there are oversight and checks (pt 4) ie there is a GIC board of directors appointed by the government and the president. However, the most influential directors are ALL ministers from the same political party. The PAP has a track record of prioritising its party’s interest above citizens’, eg public property sold to the PAP, a political party, in the AIM scandal.

Moreover, the ex president has been shown to be sleeping on the job ie did not even know the number of times our reserves had been used.

There are 3 reasons for the possibility of a huge amount of our reserves being lost. First, the PAP government has been concealing too much information to prevent scrutiny to the extent that almost all MPs do not know where GIC invested our CPF. It is human nature to hide inconvenient facts and PAP has in fact pulled out all the stops to achieve maximum opacity. If Singapore has an Olympic standard athlete, would we announce to the world such an athlete exists but not participate in the games?

The FAQ section on CPF-related matters on government websites are nonsensical at best.

Second, the manner in which the PAP urgently mandated funds into GIC appears to be a CPF Ponzi scheme’s final days. During the last 5 years from 2008 to 2013, GIC received $100.1 billion (page 111) of our CPF. The amount of CPF invested in SSGS is similar to the preceding 16 years, when it increased from $46 billion in 1992 (pg 129) to $141 billion in 2008. The first time CPF ‘investment’ in SSGS crossed the $100 billion mark was in 2003, 32 years after its inception.

Third, GIC’s investments are increasingly more speculative, ill suited for retirement plans. The speculative activities are increasing in dollar value and if these ten-billion dollar investments fail, Singapore, not just CPF members, will be in deep trouble. This raises the question – is GIC attempting to make good past losses?

In a recent divestment, the mainstream media glossed over GIC’s $269 million capital loss resulting from exchange rate volatility. Members of the public were given the impression that GIC had made a huge profit (capital gain in foreign currency) when in fact the profit was negated by the exchange rate loss when converted to local currency. So much for trust.

Back to the Serco investment.

Compared to Serco’s peers, there doesn’t seem to be any logic in GIC’s purchase other than for capital gain. Why did GIC buy into a company with lots of uncertainty instead of buying into a business to generate income to pay CPF members? Why did GIC speculate?

Who are GIC’s external fund managers? It appears they are not unlike our local punters who love to ‘pick bottom’ ie buy after a huge correction hoping it would be close to the bottom. But unlike punters who provide their own capital, GIC has an endless stream of capital coming from CPF members. And if an investment remains underwater, it can remain there forever without any accountability.

Serco shares at 10-year low today. Does GIC have any exit plan or is simply waiting to be forced by the market to cut loss?

The PAP should not continue to allow GIC to operate as if CPF members do not exist. GIC should publish and disclose all its assets with relevant statistics such as its market value, dividend yield, etc as well as all past realised losses.

In order to allay CPF members’ fear that GIC has not lost a big chunk of our CPF and that it is not a Ponzi scheme as many now see the resemblance, PAP should immediately address the issue of transparency. And don’t expect us to believe all’s fine at GIC just because PAP says so.

Losing 55% of Serco’s value within 6 months is really not the issue. The issue is with GIC’s transparency because it prevents us from knowing the number of Serco-type investments in GIC’s book.