20160509 Why I do not trust GIC to manage my CPF

CPF members have been taken for a ride but many are still reluctant to engage PAP and hold them accountable. Ignorance in this case is not bliss but stupidity. No sane person would allow another, or a government, to dictate the usage of his own money.

PAP has never provided a shred of evidence that our CPF investments have not been wiped out. If there is nothing wrong with our investments and Norway could disclose its investments in more than 9000 listed companies, why is GIC afraid of transparency?

Why should I trust a government which has been concealing material information for decades? And we are not talking about $30 million or $300 million but $300 billion worth of investments.

I chanced upon a listed portfolio of GIC securities and the businesses that GIC invested in are not what we CPF members would invest in ourselves. GIC’s May 2013 listed portfolio (take note some of them may have been divested).

And since most CPF members intend to retire in Singapore, why is PAP investing 100% of our CPF in overseas assets, unnecessarily subjecting our retirement savings to huge forex risks beyond its control? This does not make any sense to me.

Just how risky are foreign investments? If GIC has not divested its stake in Arrium Ltd, it may lose almost the entire capital of more than $100 million as Arrium has been placed in voluntary administration.

If GIC has not divested its stake in New World Department Store China Ltd, unrealised losses would have amounted to more than $50 million/60% of capital.

And why did GIC invest in New World Department Store when online shopping has been gaining popularity?

With all these losers, is the government channeling more CPF into GIC because it is unable to return CPF members our hard earned savings at 55? Or even all OUR money at 65?

Taking into account other profitable investments, it’s still unlikely for GIC to have made 6.1% annualised return over 20 years. One has to bear in mind that In the real world of investment, it’s easier to lose, say, 70% than make a 70% profit on an investment within the same time frame.

Before critics claim that I am cherry picking, they should first scrutinise GIC’s portfolio of listed securities. If not, isn’t it better not to speculate on my attempts to highlight the need for transparency?

To better understand GIC’s ‘investment model’, all we need to do is look at its biggest boo-boo – underwater-for-8-years UBS. GIC did earn some coupons and peanuts dividends of about $3 billion. However, GIC’s 6.38% stake/246 million shares (6.38% X 3.85 billion total UBS shares) has a market value of about CHF4 billion/S$5.6 billion based on its current share price CHF15.1. This translates into an unrealised loss of about S$5.4 billion after 8 years! (CHF1 = S$1.4)

When unrealised losses could amount to several billions in ONE investment, should CPF members continue to hope that smaller investments fare any better? If GIC was so reckless as to throw $14 billion on a single bet, couldn’t it have also done likewise with smaller bets?

GIC’s investment in Citigroup and its public impression of a fund manager par excellence need clarification. Credit should be given where it is due but GIC actually profited from its Citi investment through pure luck.

Bear in mind that shortly after GIC placed its US$6.88 billion Citi bet:
– Citi was facing bankruptcy and had to be bailed out by the US government.
– Although GIC had invested in 7% Citi notes in perpetuity, Citi was not able to continue paying the 7% dividends.
– It was due to the US government bailout that GIC’s original conversion price of US$26.35 was miraculously reduced to US$3.25.
– The US government indicated that taxpayers would guarantee up to US$306 billion of Citi’s toxic assets to keep Citi afloat.

Question:
Did GIC foresee Citi’s collapse,
– its inability to continue paying 7% dividends,
– the US government bailout and
– the reduction of Citi’s conversion price from US$26.35 to US$3.25?

If nothing had gone as planned, wasn’t GIC’s gain from Citi based on pure luck?

Chart source: markets.ft.com (share price should be divided by 10 due to a 1 for 10 reverse stock split in 2011)

If Citi was such a good investment as claimed, why is its share price still languishing 84% below GIC’s original conversion price of $26.35 after 8 years? Based on fundamentals, Citi is no doubt a lousy investment. Instead of taking a disciplined approach and channel capital to more productive investments, Singaporeans are told we need to have faith and continue loving Citi for 20 to 30 years!

At best, GIC’s two biggest investments have earned zero return for 8 years. Will CPF rules be tweaked to trap more of our CPF because GIC has tens of billions in assets yielding zero or negative return?

GIC has become extremely reckless because there has been no accountability. Every investment is subject to risks but it is not acceptable for GIC to take concentrated positions for the simple reason that there’s no Plan B if it makes a mistake. Could GIC afford to lose 50% or S$12.5 billion on both investment? If GIC was not prepared for such a loss why did it risk $25 billion of our CPF and reserves by investing in Citigroup and UBS?

The public should not lap up all the propaganda about GIC’s investment prowess because a lot of it’s ‘investments’ are simply bets which could go either way.

The manner in which GIC has been speculating with our CPF and its refusal to be transparent leaves me to conclude that a lot of our CPF investments are submerged somewhere in the … Mariana Trench. I really have no more trust in GIC managing my CPF.

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5 Responses to 20160509 Why I do not trust GIC to manage my CPF

  1. CH CHUA says:

    Have you thought about more than one trillion dollars and already much more?

    As a very small sovereign country, certain “assets” MUST be covered under OFFICIAL SECRET ACT to protect our sovereignty and for national defence and security. We do not know who are our enemies and are envious or jealous or ready to conquer and take over what has been achieved over past 5 decades! You small country, you do not need so much $$$$. Let us spend it all for you!

    I think current system is good and secure and CPF savings should not be publicly divulged.

    We are just a small country in a “UNITED NATION?” world consisting of over 200 countries and lie in a very strategic and sensitive zone!

    No doubt I may be unhappy, I do not have feeling of LIFE THREATENING insecurity for my funds in there.

    In fact I feel it is safer and also for fellow SINGAPOREANS N PRs too!

    I would have probably have withdrawn ALL at 55 or on retirement and naively been cheated or spent all of it by now!

    I am sure fellow readers, like me; would have heard of alot of stories of friends and relatives who had their CPF withdrawal monies squandered or cheated by mistresses or con-men, etc within short span of 2 to3 years.

    Many of them, in early days; have also secretly negotiated with their employers and choice was given to them to have full pay including CPF component in cash so that they have more cash in hand and “that the government would not cheat them of their CPF monies!” Many of them live in regret now, not even having earned interests on their “would have been” CPF deposits!

    They spent their money and now look for public pity and government support and handouts and curse them when no fresh money according to their expenditure patterns is forthcoming?

    I need not have necessarily voted for PAP but am a severe critic of several of their policies but we should not be naive.

    Yes, I have been scolded and cursed by even family members and relatives who now have to retract their accusations and statements as they live on handouts because they overspent what they earned and did not have enough CPF savings as they did not contribute and in their secret arrangements with their employers.

    Their employers did not have to contribute their share of CPF component as agreed with them! Who are the fools now?

    They now live in envy and jealousy and have become threats to themselves and their families and friends because they do not have “extra money” to spend in their retirement!

    • Phillip Ang says:

      Using MP Goh’s analogy – citizens being children and the government our parent – would you be happy if your parent has taken your retirement savings, promised to return when your turn 55, increased the return date to 65 and now tells you he will pay you in instalments until you die?
      Your parent says it’s for your own good because you are not disciplined and even though of grandpa age, still cannot think or resist women.
      Your parent also insists that although it’s your money, there is not need for you to know where it is invested. Just trust blindly.
      But even if you ask, there will be no answers because the money is no longer in your hands.
      I would suggest you scrutinise GIC’s investments in order to really understand what is going on.
      The few who can’t manage their money should not deprive those who can.
      CPF members like you who need the government to manage your retirement savings despite your maturity should be given the option.
      But others who prefer to manage our own hard earned savings should not be forced to hand over our money to the government.
      In a democratic system, it’s the people who decide, not PAP.
      Thank you for your interest.

  2. wongcheokwan says:

    Mr Chua,

    Kindly elaborate on the trillion dollars. Who are the owners?

    Was part of that spent on those who did not contribute? There must be no free lunch.

    THERE MUST BE A BOTTOM LINE FOR PROFIT AND LOSS.

    Thanks for your effort in the writeup.

    Also thanks to Phillip for his efforts n analysis.

  3. Pingback: Lift GIC’s cloud of opacity | Askmelah.com

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