In financial markets, “talking a good book” means constantly playing up one’s investment achievements
while ignoring failures; sarcasm usually intended. So it seems Lim Chow Kiat. Chief Investment Officer of
GIC, when he penned the article “Investing for the future: GIC’s long-term view” (http://www.straitstim
Mr Lim wrote euphemistically about how “GIC’s performance has indeed benefited from a long-term
perspective” and “our investment return gained substantially ……..enduring the short-term uncertainty,
and occasional short-term pain, has paid off.” He also touch on key points of investment which are
summarised as follows;
On Governance Framework. “Assuring stakeholders that our portfolio is managed according to our
mandate is essential. We have a ‘no surprises’ policy, which means we are proactive in raising issues
relating to risks and future challenges as a way of building and maintaining the confidence of our clients
and board of directors.”
On Investment Mandate. “Whether it is our client’s mandate to us or our mandate to external
managers, we look for clarity. Clear statements on the return objective, risk capacity, and scope of
authority give fund managers the confidence to construct the best portfolios for delivering sustainable
results. In particular, the appropriate time horizon for evaluation should be discussed and agreed on
On Communication. “First, communication is important to surviving the long and often bumpy ride.
Long-term investors not only need to get the investment call right but also need to maintain stakeholder
confidence that the investment strategy will most likely turn out right, even if current market prices
As a financial markets professional of nearly 35 years, the writer finds little to fault Mr. Lim’s articulation
of general investment principles. However there are a couple of critical issue peculiar to Singapore
which paints Mr. Lim’s article as rather less than grounded in reality.
Going by Mr. Lim waxing lyrical about the need for “clarity”, to “maintain stakeholders’ confidence” and
all those nice sounding words relating to scrutiny and transparency, then by “stakeholder” he can only
mean the government. That is because the ultimate stakeholders, i.e. Singapore citizens, do not have the
benefit of the scrutiny and transparency inferred by the euphemisms since they do not even know the
size of the reserves let alone the crucial expected long term real returns which determine the amount of
returns spent in the budget.
In sheer contrast, Norway’s Government Pension Fund (GPF) leaves no doubt that the stakeholders are
Norwegian citizens and it is to them that scrutiny and transparency are meant to maintain confidence.
Unlike the GPF, the assets managed by GIC did not come from natural endowment but from transfer of
wealth from household balance sheets to the government balance sheet via elevated land prices, low
rates of return on CPF and GLC-induced cost of living. It also comes from denying citizens social
equalization benefits. Singapore citizens are the stakeholders referenced by Mr. Lim’s writing even if, for
him, the only stakeholder that matters is the government.
GIC has World Best Client
Mr. Lim waxed especially lyrical about investment returns having “gained substantially from the
compounding of returns, the patient harvesting of long-term risk premiums, the counter-cyclical
rebalancing of our portfolio, the ability to take advantage of short-term dislocations in financial
markets”. He puts it down to long termism.
Be it as it may but, Mr. Lim is being disingenuous because unlike most other asset managers GIC does
not face the pressure of investor redemptions, i.e. clients withdrawing their funds in period of poor
performance or even if a good performance fell short of investor expectations. GIC has the world’s best
client, the Singapore government, who not only never redeems whatever the circumstances but
continues to pour in funds even when performance is lacking.
Yet citizens are told 4% long term real return in US$ terms is “good return”. That may be “good” if it is
meant only by meeting the benchmarks adjusted to reflect GIC’s portfolio mix. However, with that huge
advantage conferred by the Singapore government, GIC ought to consistently beat those benchmarks,
no ifs no buts especially since in Mr. Lim’s words, it allows GIC to do all those things he wrote such as
“the patient harvesting of long-term risk premiums“. By accepting the current returns as “good” when
they ought to be demanding more, the directors of GIC which includes the Prime Minister himself, are
giving the Chief Investment Officer and his team of portfolio managers a rather easy ride on the
government’s coattails. GIC can have its “long termism” as Mr. Lim puts in but in the real world of asset
management, it can make managers complacent.
Mr. Lim is right about clarity and the need to maintain stakeholders’ confidence. Nobody should appoint
an asset manager who is not transparent and not subject to performance pressure. In sheer hypocrisy,
the government does not feel the need to be transparent in order to maintain the confidence of the
ultimate stakeholders. Put in another way, should any stakeholder be confident about a government
who feels the need to manage its finances in secrecy?