CPF members have been repeatedly told that GIC (and Temasek) does not take on riskier investments with our CPF and reserves.
This not true. GIC has to take on higher risk because its asset mix demands a riskier approach.
GIC’s assets consists of 39% of nominal bonds and cash plus inflation-linked bonds which generate miserable yields.
(my assumptions in the last column)
If 2/5 of the portfolio is generating very low returns, the balance 3/5 of investments will need to work doubly hard (more risks).
For example, if $40 out of $100 is earning only 3% and my objective is to generate a portfolio return of 6% a year, the balance $60 will need to generate at least 8% per year.
Within the equities portfolio, there is a percentage of underwater investments.
In the current environment of overinflated asset prices, trying to generate 8% is pretty risky.
It is also impossible for the 9% PE to offset low returns of cash and bonds as well as other investment losses. GIC is thus forced to take on riskier investments in equities.
The number of multi-billion dollar deals has been increasing and these have no plan B. Isn’t this risky? Perhaps PAP should go ask Tin Pei Ling.