20160601 GIC and Temasek take little risk with our CPF and reserves?

Recently came across this December 2014 Bloomberg article: “Since then, GIC has moved away from the endowment model of strategic asset allocation it had followed for a decade. In the process, it’s become one of the world’s most aggressive sovereign wealth funds.”

According to Investopedia, an aggressive investment strategy is one “that attempts to maximize returns by taking a relatively higher degree of risk”.

9 months earlier in March 2014, then SMOS for Finance Josephine Teo had told Parliament: “GOVERNMENT spending will rise over time, but this does not mean Temasek Holdings and GIC will have to take on riskier investments to fund it”. If our SWFs are not taking on riskier investments to fund government spending, was Josephine and the PAP paying it out of their pockets?

No one knows what’s really happening at GIC and Temasek except for a handful of ministers. Our SWFs appear to have been taking increasingly higher risks in a desperate attempt to recoup earlier investment losses. .There is no logical explanation for their tikam tikam strategy.

Josephine should have known that Temasek’s portfolio consisted of large chunks of Chinese investments. The Chinese government would of course NOT allow their divestment: Singapore’s signal of a loss of confidence in China would have set the stage for foreign investors to exit their Chinese investments..

Just how risky are our investments? Last year, Temasek was reported to be the largest investor in Chinese banks. Temasek’s combined stake was worth US$18 billion while the top ten US companies’ was valued at US$20.1 billion.

Why were US financial institutions selling lock, stock and barrel while Temasek rushed into China as if there was a Great China Sale? In order to know who’s being stupid, let’s look at a couple of the investments divested by US companies to Temasek.

When Goldman Sachs (GS) divested its ICBC stake, it was taking a 300% plus profit on a 7-year old, US$2.58 billion investment. If Temasek was hoping to replicate GS’ return, it must have been sorely disappointed: Temasek is sitting on unrealised losses 4 years after its first purchase from GS.

It is common knowledge that Chinese banks collectively own hundreds of billions in bad loans and this is one reason foreign investment firms shun Chinese banks. Instead of heeding common sense, Temasek became a major shareholder.

It’s easy for Temasek to throw tens of millions at ICBC in its ‘vote of confidence’: the money does not belong to Temasek directors but Singaporeans. Perhaps Temasek was acting stupid and pretended it did not know that the share price of any good company doesn’t require support from a “vote of confidence”?

Will this major investment valued at $15 billion in 2015 be in ICU soon?

Bank of China also a ‘good’ investment?

Temasek’s multi-billion dollar foreign investments have produced paltry returns. It is logical to assume similar performance for its smaller investments.

Temasek could not have been unaware that Chinese so called ‘growth’ has been built on a mountain of debt which ballooned from 150% of GDP to 280% in 8 years. The Economist has warned of “The coming debt bust” which it says is a question of when, not if. What will happen to our reserves?

Similar to Temasek, sister company GIC is just as reckless. The government could prove otherwise with the disclosure of all its investments. But of course it can’t.

The performance of Temasek and GIC matters to Singaporeans because $300 billion comes from CPF members. With so much opacity, there’s no point telling us our retirement savings are guaranteed unless the guarantee can be eaten, no?.

Singaporeans should also be aware that when the government takes on more investment risks and makes huge losses, we are ultimately the losers, ie current CPF payout age at 65 years old could be postponed to 90, option given to bequeath CPF monies to our grandchildren (earn higher interest rate?), reduction in public spending, etc

It is a fact that GIC and Temasek have been taking on higher investment risks. PAP should be upfront with citizens on this.

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