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<TABLE border=0 cellSpacing=0 cellPadding=0 width=452><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published September 29, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Cautious GIC says bonds not without risk
By CONRAD TAN
<TABLE class=storyLinks border=0 cellSpacing=4 cellPadding=1 width=136 align=right><TBODY><TR class=font10><TD width=20 align=right></TD><TD>Email this article</TD></TR><TR class=font10><TD width=20 align=right></TD><TD>Print article </TD></TR><TR class=font10><TD width=20 align=right></TD><TD>Feedback</TD></TR></TBODY></TABLE>
(SINGAPORE) The Government of Singapore Investment Corp's main task is to preserve the purchasing power of Singapore's reserves, which means it pays a great deal of attention to analysing risk, deputy chairman Tony Tan said yesterday.
'For GIC, our philosophy is, we look after the downside; the upside will look after itself. Everybody looks for return, but GIC probably looks at risk much more than other large investors.'
Studying risks carefully meant that it steered clear of collateralised debt obligations - and avoided the huge losses that many CDO buyers suffered in the financial crisis.
GIC's risk department analysed CDOs - pools of debt instruments such as mortgage-backed securities - 'for many years, but could not work out where the ultimate risk in CDOs lay, whether it was in the originator, issuer or the distributor', Dr Tan said.
'As a result, GIC did not put any money into CDOs, which saved us from problems which many large banks fell into.'
It also spotted discomfiting signs of over-exuberance in various asset classes in 2007 and took the drastic step of selling large holdings of equities and other risky assets in favour of cash. That shielded GIC from the worst of the market declines when the collapse of Lehman Brothers in September last year sent financial markets into a tailspin.
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</TD></TR></TBODY></TABLE>Now, Ng Kok Song, GIC group chief investment officer, said that he was looking closely at how the risks of holding bonds have increased in the wake of the financial crisis - and may adjust GIC's bond holdings accordingly.
'Bonds were a spectacular investment in the 1980s and the 1990s,' Mr Ng said. But the situation today is different: bond yields are much lower than in the past, governments are issuing massive amounts of debt, and 'there's a big concern that the hyper-easy monetary policy that's now being practised by governments might feed higher inflation down the road'.
'So bonds, which used to be thought of as a safe asset class, could potentially be a risky asset class. This is an issue which we have to deal with in deciding what is the appropriate allocation for it.'
GIC manages Singapore's foreign reserves, including pension savings.
=> = CPF?
Mr Ng said that GIC's 'overriding objective is that we should manage this money to earn a return that, at the minimum, protects the international purchasing power' of Singapore's reserves.
To achieve that, it needs to earn an investment return that exceeds the global rate of inflation - a positive real rate of return.
Dr Tan said that GIC is confident that it can continue to do so, by studying various opportunities over its 20-year investment horizon.
One result of the financial crisis is that 'you're going to see a major differentiation between the emerging economies and the developed economies', Mr Ng said. 'For us, the way to exploit that is to put increasing emphasis on our investments in the emerging markets.
'Given this differentiation, probably the proportion of our investments in emerging markets - not just in public equities, but also in private equity, real estate, commodities - is likely to increase.'
</TD></TR></TBODY></TABLE>
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Cautious GIC says bonds not without risk
By CONRAD TAN
<TABLE class=storyLinks border=0 cellSpacing=4 cellPadding=1 width=136 align=right><TBODY><TR class=font10><TD width=20 align=right></TD><TD>Email this article</TD></TR><TR class=font10><TD width=20 align=right></TD><TD>Print article </TD></TR><TR class=font10><TD width=20 align=right></TD><TD>Feedback</TD></TR></TBODY></TABLE>
(SINGAPORE) The Government of Singapore Investment Corp's main task is to preserve the purchasing power of Singapore's reserves, which means it pays a great deal of attention to analysing risk, deputy chairman Tony Tan said yesterday.
'For GIC, our philosophy is, we look after the downside; the upside will look after itself. Everybody looks for return, but GIC probably looks at risk much more than other large investors.'
Studying risks carefully meant that it steered clear of collateralised debt obligations - and avoided the huge losses that many CDO buyers suffered in the financial crisis.
GIC's risk department analysed CDOs - pools of debt instruments such as mortgage-backed securities - 'for many years, but could not work out where the ultimate risk in CDOs lay, whether it was in the originator, issuer or the distributor', Dr Tan said.
'As a result, GIC did not put any money into CDOs, which saved us from problems which many large banks fell into.'
It also spotted discomfiting signs of over-exuberance in various asset classes in 2007 and took the drastic step of selling large holdings of equities and other risky assets in favour of cash. That shielded GIC from the worst of the market declines when the collapse of Lehman Brothers in September last year sent financial markets into a tailspin.
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'); } //--> </SCRIPT><TABLE border=0 cellSpacing=0 cellPadding=4 width=300 align=right><TBODY><TR><TD vAlign=top align=middle>
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'Bonds were a spectacular investment in the 1980s and the 1990s,' Mr Ng said. But the situation today is different: bond yields are much lower than in the past, governments are issuing massive amounts of debt, and 'there's a big concern that the hyper-easy monetary policy that's now being practised by governments might feed higher inflation down the road'.
'So bonds, which used to be thought of as a safe asset class, could potentially be a risky asset class. This is an issue which we have to deal with in deciding what is the appropriate allocation for it.'
GIC manages Singapore's foreign reserves, including pension savings.
=> = CPF?
Mr Ng said that GIC's 'overriding objective is that we should manage this money to earn a return that, at the minimum, protects the international purchasing power' of Singapore's reserves.
To achieve that, it needs to earn an investment return that exceeds the global rate of inflation - a positive real rate of return.
Dr Tan said that GIC is confident that it can continue to do so, by studying various opportunities over its 20-year investment horizon.
One result of the financial crisis is that 'you're going to see a major differentiation between the emerging economies and the developed economies', Mr Ng said. 'For us, the way to exploit that is to put increasing emphasis on our investments in the emerging markets.
'Given this differentiation, probably the proportion of our investments in emerging markets - not just in public equities, but also in private equity, real estate, commodities - is likely to increase.'
</TD></TR></TBODY></TABLE>