Thursday, January 31, 2013

Singapore's wealth funds

A few people have asked me to explain how GIC and Temasek are being funded. Some of them think that their CPF savings are tied to the performance of these companies. 

I must first declare that I am not really an expert in this area. You can take my comments as coming from a person who has been following the news over the years with some financial knowledge.

Temasek took over the shares of government linked companies that were previously held by the Ministry of Finance. These companies were set up by the Government during the early years of our development. The initial cost was low, but the companies have grown manifold over the decades. They include the telephone, power, transport and other utilities that have since been privatized.

If Temasek had continued on this model, they would have assets and no liability and would be very safe.

However, in recent years, Temasek had borrowed money by issuing bonds in the international market. This has increased risk for Temasek, but i think the scale is quite small.

While we read about some bad investments be Temasek causing billions of dollar in losses, we should also look at the good investments that made billions of dollar in gains. We should also look at the results over many years, instead of a single year.

Over a period of years, the results have been satisfactory.

GIC invests the budget surplus and foreign reserves of Singapore. They are required to invest outside Singapore. So far, their investment performance has been satisfactory, and follow the global benchmarks.

When there is a global crisis, the results of GIC will be impacted, but the performance should improve with a global recovery.

Some analysts, especially from independent sources and the social media, have published findings to show that the performance of these two companies have been mediocre, and not outstanding to justify the extremely high salaries and fees that were being paid. I agree with these sentiments.

Most of the CPF savings are invested in government bonds and are used for building HDB flats and national development. The CPF savings are safe. There is sufficient money to pay the monthly sums to those above 60 years.

The government chose to pay the minimum sum in monthly installments over a lifetime, in spite of the unhappiness of the general public. I agree with this decision, although there are valid arguments for flexibility in allowing early withdrawals under certain circumstances. I do not support the lack of flexibility.

I look forward to read other contributions.

No comments:

Blog Archive