Singapore’s GIC gets $33b from MAS for long-term investment

It is unclear what impact this will have on GIC’s overall holdings. The sovereign wealth fund, which was established in 1981 to manage Singapore’s foreign reserves, claims to have well over $100 billion in assets. The Sovereign Wealth Fund Institute puts GIC's holdings at more than $390 billion.

MAS said in a statement that the S$45 billion represented the excess over what is deemed necessary to execute monetary policy, which is centered on exchange rate management. The Singapore dollar is managed against a basket of currencies and the exchange range fluctuates within a policy band. The MAS makes market interventions to ensure price stability.

As of April 2019, Singapore’s official foreign reserves stood at S$404 billion. The reserves have steadily increased as a proportion of GDP, reaching 82% in the first quarter of this year. MAS believes a level of at least 65% is necessary to provide a strong buffer against stresses in the global economy and markets, and to underpin confidence in monetary policy.

MAS has made transfers to GIC before, but these are not normally disclosed. However, MAS said it had decided to become more transparent regarding monetary policy operations. This includes releasing data on foreign exchange intervention activities every six months.

By entrusting the excess capital to GIC, MAS said it expected investment on a long-term basis to deliver higher returns. The sovereign wealth fund posted a 20-year annualized return of 3.4% for the 12 months ended March 2018, the third consecutive year in which performance has declined. This is almost certainly superior to the returns MAS generated on the investment-grade bonds that make up the bulk of its portfolio.

GIC's private equity allocation dropped from 11% to 9% during the 12-month period, while real estate held steady at 7%. Bonds and cash also fell by two percentage points to 35%. Developed market equities was the sole beneficiary of these shifts, climbing from 23% to 27%. Emerging market equities and inflation-linked bonds, on 17% and 7%, were both unchanged.

The GIC investment framework comprises three building blocks: a reference portfolio, currently 65% global equities and 35% global bonds, based on long-term risk appetite; a policy portfolio that offers balanced exposure across different asset classes and envisages an 11-15% private equity allocation; and an active portfolio comprising strategies in which managers add value to the policy portfolio while broadly maintaining the same level of risk.

Just as GIC receives capital from MAS, the Singapore government is entitled to take some of it back. When formulating the annual budget, the government is entitled to spend up to 50% of the long-term expected real return on assets managed by GIC as well as those held by MAS and Temasek Holdings.

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• Topics
• Southeast Asia
• LPs
• Sovereign wealth fund
• GIC Private
• Singapore