VZCZCXRO4749
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHGP #1059/01 2740903
ZNR UUUUU ZZH
R 300903Z SEP 08
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 5832
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 SINGAPORE 001059 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON SN
 
SUBJECT:  GIC ISSUES FIRST ANNUAL REPORT IN BID FOR TRANSPARENCY 
 
¶1.  Summary:  In a bid to provide greater transparency and allay 
global concerns over sovereign wealth funds, Singapore's state-owned 
Government Investment Corporation (GIC) issued its first annual 
report offering some details on the operations of one of the world's 
largest and more secretive investors.  The report falls far short of 
full transparency, and does not provide financial statements or even 
the size of the fund.  The report reveals that GIC's assets are 
focused primarily in developed markets, with the U.S. as the biggest 
single destination and a portfolio that has moved from safer 
fixed-income assets to alternative investments over time.  The real 
(inflation-adjusted) annual return over the past 20 years was 4.5 
percent.  With a substantial hoard of cash, GIC may be looking to 
invest in distressed assets in the United States. End Summary. 
 
¶2.  On September 23, GIC issued its first annual report in its 
27-year history, disclosing a reasonable but not stellar 4.5 percent 
real average annual return over the past 20 years.  The GIC is a 
sovereign wealth fund (SWF), investing a portion of Singapore's 
fiscal surpluses overseas.  The reports will now be made annually. 
With this report GIC joins Singapore's other SWF Temasek Holdings 
which began issuing annual reports in 2004. 
 
Opening the books to keep markets open 
-------------------------------------- 
 
¶3.  GIC said it issued the report in order to allay concerns that 
are circulating in Europe and the United States about potential 
political goals of sovereign wealth funds.  The extra transparency 
could also serve to head off any regulations that might restrict its 
investments abroad.  In the report's opening statement, GIC's Deputy 
Chairman Tony Tan assured the investment community and the countries 
in which it invests that the SWF's activities "have only one purpose 
- financial return."  The report goes on to state that the GOS 
"neither directs nor interferes in the company's investment 
decisions." 
 
¶4.  However, the report falls far short of full transparency, 
declining to reveal detailed financial statements or even the exact 
size of the fund.  GIC did not provide any detail on the size of 
assets under its management, saying that the GOS did not view it in 
the national interest to do so.  The report says only that GIC's net 
assets are "well over US$100 billion", a figure GIC has used over 
the past decade.  Outside estimates place the size at roughly 
$300-400 billion. 
 
¶5.  Nevertheless, the report does provide some insight into GIC's 
assets, showing a trend toward investment in riskier markets and 
alternative asset classes (see table in para 9).  Only 26 percent of 
GIC's assets are currently in fixed-income investments like bonds, 
down from over 75 percent when the fund was first established. 
Investments have since spread into riskier hedge funds, real estate, 
private equity and venture capital.  GIC has also diversified into 
emerging markets, although 80 percent of its assets are still held 
in the United States, Europe or Japan.  The U.S. is the largest 
single destination for GIC investment with a 34 percent share, 
including GIC's USD 6.9 billion investment in Citigroup in January. 
 
¶6.  GIC's report showed a rolling average annual real return of 4.5 
percent over the past 20 years, or 5.8 percent in nominal terms. 
GIC attributed what it sees as respectable returns to sustained 
growth and declining inflation in the 1980s and 1990s, a shift in 
assets from fixed-income to higher performing assets, and active 
management of the funds.  However, the Asian financial crisis in the 
late 1990s, the technology bust of 2001 and the recent credit crisis 
have negatively impacted balance sheets.  The current figure is 
considerably lower than the 9.5% figure cited in 2006 by Chairman 
(and former PM) Lee Kuan Yew as the return for the first 25 years of 
GIC's existence.  A chart of the rolling 20-year return showed a 
decline of two percentage points since 2005.  The decline may simply 
reflect the exclusion of GIC's high returns in early years which are 
no longer included in the rolling average, but may also indicate 
some serious financial losses in the past few years.  GIC has taken 
heat from Singaporeans for multi-billion dollar investments in 
Citigroup and Swiss bank UBS in the past year whose share prices 
have since dropped sharply in value. 
 
¶7.  In an apparent attempt to personalize GIC for Singaporeans whose 
funds GIC manages, 20 pages of the 48-page report are dedicated to 
introducing the members of GIC's various boards of directors and 
dozens of managing directors.  Only 45 percent of GIC's 
approximately 1000 staff is Singaporean, with the rest from 
overseas, including 12 percent from the United States.  The report 
also discloses that one-third of the assets are handled by external 
managers, particularly for funds investing in real estate funds, 
private equity funds, bond funds, index funds and hedge funds. 
 
New U.S. Investments? 
--------------------- 
 
 
SINGAPORE 00001059  002 OF 002 
 
 
¶8.  GIC's report notes a "more challenging investment environment" 
going forward with risks from macroeconomic imbalances and rising 
commodity prices, but also emergent opportunities.  At a press 
conference announcing the release of the report, Group Chief 
Investment Officer Ng Kok Song said that the credit crunch in the 
United States "would present very interesting opportunities in 
impaired assets."  With seven percent of its holdings in cash, 
approximately USD 20 billion, GIC is well-placed to pick up 
distressed assets.  Deputy Chairman Tan warned, however, that the 
worst of the crisis may not be over and GIC would still be prudent 
in its investments. 
 
¶9.  Asset Mix of GIC 
         %  % 
Public Equities        44 
 Developed Markets     34 
 Emerging Markets     10 
 
Fixed Income         26 
      Nominal Bonds      20 
 Inflation-Linked Bonds     6 
 
Alternatives         23 
      Real Estate      10 
 Private Equity, VC & Infrastructure    8 
 Absolute Return Strategies    3 
 Natural Resources      2 
 
Cash & Others        7   7 
Total        100  100 
 
¶10.  Geographical Distribution of Investments 
 
Americas          40 
 United States      34 
 Others        6 
 
Europe          35 
 United Kingdom       8 
 France        5 
 Germany        3 
 Ireland        3 
 Italy        3 
 Switzerland       3 
 Others       10 
 
Asia           23 
 Japan       11 
 China/Hong Kong      4 
 South Korea       2 
 Taiwan        2 
 Others        4 
 
Australia         2   2 
 
Total        100  100 
 
HERBOLD