Published March 5, 2009

25% lopped off GIC's portfolio: MM

He says it bought into UBS and Citigroup too early but will continue investing abroad

By CHUANG PECK MING

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(SINGAPORE) The portfolio of the Government of Singapore Investment Corporation (GIC) has shrunk by about 25 per cent from its peak, partly because it went in too early to buy into once-prized global banks.

Minister Mentor Lee Kuan Yew - who is also GIC chairman - disclosed the extent of the sovereign wealth fund's loss in a candid interview with Reuters released yesterday.

Fielding questions later from guests at a Thomson Reuters dialogue where he was the guest of honour, Mr Lee said GIC bought into global banks UBS and Citigroup 'too early'.

Both banks were clobbered by the financial meltdown that gathered pace in the second half of last year. Unfortunately, GIC had made its moves well before that, buying into UBS in December 2007 and picking up its Citi stake in January last year - months before the real decline set in.

Ironically, GIC had foreseen a plunge in the equity market and had pared its equity holdings before the crisis from about 60 per cent of the portfolio to 45-50 per cent.

'We became cash-rich and when the market fell, we went into UBS and Citi,' he said. 'But we went in too early. That's part of the ride.'

GIC last week converted US$6.88 billion worth of Citigroup preference shares into common stock at a price of US$3.25 a share to shore up the embattled US lender, taking in the process a paper loss of around a quarter of its initial investment.

Song Seng Wun, an economist at Malaysian bank CIMB in Singapore, told Reuters that a 25 per cent decline in GIC's overall portfolio would suggest 'an outperformance' against the global markets.

'How could we have known this was the extent of the damage? You look at all the big-name banks - they have gone down, misjudged the situation, ruined their careers,' Mr Lee said.

According to him, the multi-billion-dollar fund could 'tough it out' for 10-15 years, if necessary.

Analysts estimate that the value of GIC's fund was around US$300 billion a year ago, although GIC has only said that it managed well over US$100 billion.

Mr Lee said GIC would not follow the lead of other sovereign wealth funds and rechannel its investments back home to help prop up the local economy in the current global downturn.

'GIC has a policy of not investing in Singapore,' he said. 'It's a reserve fund. When Singapore goes down, we want the fund to be abroad because the developed countries (and) the major developing countries cannot all go down with Singapore. So that puts us in a stronger position. We have no intention of changing that policy.'

Mr Lee told Reuters during the interview that GIC had gone into private equity in a big way - and it was looking at other asset classes, such as property.

'We'll most probably stay with the financials,' he said, adding that banks must recover because they are 'the circulation system of the world'.

During the Thomson Reuters dialogue, Mr Lee also said the exit of Temasek Holdings chief executive Ho Ching - Temasek has announced she will step down on Oct 1 - has 'got nothing to do with bad investments'.

'There was a Cabinet paper to explain why Ho Ching wanted to retire,' he said. 'She thinks it's time. It's got nothing to do with bad investments. If you're going aggressively into the market, you must take the knocks when the knocks come.'

He said an expatriate - Charles Goodyear, former CEO of Australia's BHP Billiton, the world's biggest mining company - was picked as the new CEO 'because there was nobody inside Temasek equal to the job'.