20160216 After the financial crisis, we can kiss our CPF goodbye

As a CPF member, I have no faith in our system because I suspect huge losses are being covered up. The government does itself a disservice by continuing to be opaque.

It is obvious to me that GIC has been increasing its bets in the hope of making up for gargantuan losses. The recent multi-billion dollar investments are a desperate attempt to make up for losses during the Global Financial Crisis.  Multi-billion dollar investments during the GFC was to make up for previous losses.

If there is really nothing to hide, why should GIC fear transparency? PAP should not attempt to ‘engage’ CPF members by funding propaganda in the mainstream media with tax dollars or expect motherhood statements to sound anything close to nonsense.

GIC’s investments need to be put into perspective, ie betting S$14 billion in UBS in December 2007 followed by S$ 9.8 billion in Citibank the following month (total S$24 billion in 2 months).

$24 billion is slightly below the previous 2 years increase in CPF balances, ie $11 billion in 2006 and $15 billion in 2007 (MAS report pg 119). Was GIC not reckless?

GIC could have profited billions from these 2 bets alone if events had panned out according to its textbook scenario. Unfortunately, reckless investors are never rewarded in the long run.

GIC appears to have been bottom fishing UBS after a 4 year rally.

Chart @ ft.com

Likewise for Citi.

Some clarification is needed for the Citi investment. After GIC was reported to have profited US$1.6 billion from the sale of half of its 9% stake in Citi, our propaganda machine went full throttle and claimed this to be the “secret to GIC’s success” . The chart above confirms GIC’s secret to losing money, if Citi wasn’t bailed out by US taxpayers, not success.

Citi share is currently about 85% from GIC’s entry point and 93% from its high in 2006. Good investment?

Common sense also tells us that GIC had not expected Citi to collapse and be bailed out by US taxpayers.

And why would well-established banks pay 7% to 9% coupons if risks weren’t high? Were foreign banks stupid or our book-smart scholars?

Some have argued that $24 billion invested in financial institutions is just a fraction of GIC’s total assets. This is incorrect because we should view the amount as a percentage of its investment in developed market equities.

In 2007, it was managing about $130 billion CPF dollars and $170 billion from land sales revenue, totaling about only $300 billion.

Of the $300 billion, 34% or $102 billion was allocated to developed market equities. Citi and UBS alone made up 24% of investment in developed market equities. This is an extremely huge bet by any measure and if this is not speculation, nothing is.

A lot of GIC’s assets, such as Japanese assets, were also underperforming and there was no way these could have recovered to provide a constant stream of income. Japan’s Nikkei Index was still more than 60% off its high almost 2 decades later in 2008 and property prices were 70% off its high in 2014. GIC had 11% of its assets in Japan.

The government owes CPF members an explanation – how were CPF members paid with all the losses and underperforming assets?

The rate of increase in CPF balances suggests something is clearly not quite right with our investments.

From 1998 to 2006, CPF balances increased by $41 billion/$5 billion a year. Since 2007 when the increase in CPF balances crossed the $10 billion mark, it has increased by a whopping S$163 BILLION or $20 BILLION a year.

CPF balances from 1998 to 2015

Year CPF ($ bil) Increase Year CPF ($ bil) Increase
1998 85 . 2007 137 11
1999 88 3 2008 151 14
2000 90 2 2009 167 16
2001 92 2 2010 186 19
2002 96 4 2011 208 18
2003 103 7 2012 230 22
2004 111 8 2013 252 22
2005 119 8 2014 275 23
2006 126 7 2015 300 (est) 25

With an ageing population, skyrocketing housing prices and healthcare costs, why are CPF balances increasing at such a phenomenal rate?

Total CPF balances should have hit $300 billion last year, an increase of $114 billion since 2010.

Individual bets may be much lower than UBS/Citi but that doesn’t mean our risks have been reduced. In fact, our CPF may be worse hit than during the GFC: $70 billion was invested during the last 3 years at inflated prices.

At the stroke of PAP’s pen, CPF annual balances have increased from $3 billion in 1999 to $25 billion last year. CPF members should be concerned and speak up because we will be committing hara kiri with our collective silence.

Losses are more likely to be incurred and should this happen, CPF withdrawal age may soon be increased to 70 or 75. Perhaps PAP already has plans to allow CPF members to bequeath our balances to our grandchildren’s CPF accounts?

Notwithstanding all the PR to maintain confidence in GIC (setting up offices worldwide), I am convinced that legislations have been tweaked to enable GIC to go for the kill: it has to make up for past losses by taking very higher risks. But in this case, it looks like CPF members will be killed.

Soon, we can really kiss our CPF goodbye.

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One Response to 20160216 After the financial crisis, we can kiss our CPF goodbye

  1. Xmen says:

    Given that Temasek is a major investor in StanChart, the following news report may be of interest –

    “Standard Chartered: Why This Cheap Bank Stock Isn’t a Bargain”
    http://www.wsj.com/articles/standard-chartered-why-this-cheap-bank-stock-isnt-a-bargain-1456234886

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