GIC report – ‘significant’ recovery but how much exactly?

By Leong Sze Hian

I refer to the report “GIC recovers losses from previous year, sees higher returns” (Channel News Asia, Sep 27).

It states that “The Government of Singapore Investment Corporation (GIC) said on Monday that it has significantly recovered its losses from the previous year.

No figures were given, but the comment came in its latest annual report for the year ended March”.

Imagine you ask your stockbroker,”how much money did I make last year?” – and his reply is “You have ‘significantly’ recovered your losses from the previous year, but I can’t give you any figures”!

What would be your reaction? How would you feel?

I find it somewhat puzzling and perhaps rather strange that the custodian of our reserves tells Singaporeans that we did “significantly” well, but sorry no exact figures for you.

Since its “significant”, why not give us the figure?

By the way, since we also don’t know what exactly were the previous year’s losses, how do we figure out how “significant” it was?

May I suggest that the GIC’s annual report be re-written or highlighted with parentheses (my emphasis) as follows:-

“In September last year, GIC said it had recovered more than half (how much exactly) of its losses (how much) then (when – for what period (s) precisely). GIC’s porfolio lost 20 per cent in Sing dollar terms (how come losses are in S$, whereas returns are in US$?) in the financial year to March 2009, compared to the previous year”.

Since the S$ has been strengthening against the US$ over the last 20 years or so, giving “its 20-year nominal average annual rate of return increased to 7.1 per cent in US dollar terms, compared to 5.7 per cent the previous year”, may be akin to “making the picture look brighter”.

So, what was the return in S$ terms?

Has the GIC always reported its returns in the past in US$ terms only?

Can you imagine the Bank of England reporting its returns in US$, without any mention in sterling terms?

Fund managers, sovereign wealth funds, etc, typically always report returns in annualised rates of return.

Whilst there is nothing wrong with reporting returns in “nominal average annual rate of return” or “adjusted for inflation”, the annualised rate of return should not be omitted altogether.

As to “adjusted for inflation”, are we talking about the inflation rate in Singapore, United States or the world, against the US$ or S$ return?

To illustrate this point with an example, if Singapore inflation is used against US$ returns, then the return may look better, because historicial inflation has been relatively lower in Singapore compared to say the United States.

As to “This is the third year that GIC with investments valued at over US$100 billion or about S$132 billion is releasing its annual report”, what does “over US$100 billion” mean? – US$101, 110, 150, 190 billion?

With regards to “The sovereign wealth fund said its real rate of return, adjusted for inflation, was 3.8 per cent, up from 2.6 per cent a year ago”, global equities (MSCI World Index) increased by about 60 per cent from around March 2009 to around March this year (GIC’s report end date is 31 March this year). Global equities increased by about 80 per cent from the 9 March 2009 low point of that year to the high point of this year in April.

Whilst I do not have the exact numbers for an exact time period comparion, it is customary for fund managers to report returns against a benchmark.

In fact, both GIC and Temasek had compared its losses during the recent financial crisis to global equity indexes.

In other words, if we compare ourselves to global equity indexes when we suffer losses, we should also do the same when we make gains, so that there is some consistency in benchmarking returns and performance.

So, what benchmark is GIC using to report its returns now?

In respect to “So its “portfolio is in good shape” now” – compared to what? (benchmark?), to whom (other sovereign wealth funds?), by exactly how much?

“GIC said it will continue to own 3.8 per cent of stocks in Citi and 6.4 per cent in UBS. It added that as a long-term investor, it is prepared to stay with the two institutions because they have weathered the financial crisis and have returned to profitability” – This begs the obvious question – how much has GIC lost on these two stocks and when will they ever “return to pofitability” for GIC?

Whilst almost all fund managers report their annualised rates of return from inception, and for various time periods like 1, 3, 5, 10 and 20 years, I am unable to find these information in the annual report.

The financial regulations in many countries also require such similar reporting standards.

I am also unable to find any detailed financial statements in the 53-page annual report.

By the way, did the Government make any injections of funds into GIC last year, or in previous years?

If there were injections of capital in the past, is there a need to adjust the reported rates of return, or are they (if any) already reflected in the reported returns?

Does GIC  stand for ‘Give Information Cannot’?

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