LKY’s half truth: CPF fund manager GIC made 9.5% 25-year return in 2006

PAP has tried to conceal material information by disclosing meaningless figures, eg GIC 20-year returns in percentage instead of disclosing absolute numbers.

One out-of-this-world figure was disclosed by LKY, chairman of GIC for 30 years, in 2006: “Over a period of 25 years to March 2006, the annual rate of return on the foreign reserves managed by GIC averaged 9.5% in US dollar terms, and 8.2% in Singapore dollar terms. The average rate of return over global inflation was 5.3% per annum.”

The whole world acted stupid and took one man’s word at face value, as if there was no elephant in the room. 😦

In 2011, LKY continued to stretch the world’s imagination: “The Government of Singapore Investment Corp (GIC) has achieved returns comparable to equities since its inception 30 years ago, but with less risk.” Reuters
When something sounds too good to be true, in this case, it definitely is. Of course GIC can maintain otherwise so long as it remains opaque but LKY’s statements fly in the face of logic and common sense.

This is because GIC’s asset mix includes cash and bonds which earn minimal returns. Among other investments, there were winners as well as losers. Could most of GIC’s winners have earned double digit returns? For 30 years?

Hmm … if former civil servants could achieve this, they would have been approached by Warren Buffets in the fund management industry.

The reality: GIC has been relying on tax and CPF dollars to prop up GIC’s portfolio value.

In order to confirm that GIC could not have made “9.5% in US dollar terms” over 25 years since 1981, we need to know the value of its portfolio in 2006. Since it has not disclosed any figure, we can use one by a reputable source and work backwards.

According to the Sovereign Wealth Fund Institute, GIC had assets of about US$350 billion under management in 2016.  From this, we are able to compute its US$ 215 billion AUM in 2006 using its annualised 10-year 5% returns. Calculator
With this figure, we work backwards again to determine the amount GIC was managing in 1981, ie US$22.22 billion.
Did GIC’s investments really earn US$193 billion ($214.87 bil – $22.22 bil) since its inception till 2006? The answer is “NO”.

The US$193 billion “return” includes S$118 billion in CPF contributions (a small percentage is interest). If government land sales revenue was managed by GIC, a large percentage of GIC’s US$193 billion “return” was in fact unearned income. 🙂

When LKY boasted that GIC had made annualized “9.5% in US dollar terms” over 25 years, he was misleading at best. So long as GIC refuses to disclose material information which should have been in the public domain decades ago, it appears LKY had told Singaporeans a half truth. 😦

PS
A higher or lower figure could be used but the conclusion would still be the same.

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