By Leong Sze Hian
I refer to the article “GIC reports use nominal return in US dollars to avoid confusion: Josephine Teo” (Straits Times, Mar 13).
US$ only to avoid confusion?
It states that “Minister of State for Finance Josephine Teo explained that the GIC stopped publishing its nominal returns expressed in Singapore dollars three years ago, to avoid confusion when comparisons are made with other fund managers or global indices.
Its annual reports include the nominal return in US dollars as that is the commonly expressed basis internationally for comparisons of investment returns achieved by global investment funds.
Elaborating on the problem of confusion, Mrs Teo said: “Indeed, in previous years, we found that some readers (of GIC’s annual reports) had compared GIC’s returns in Singapore dollars with the returns of global market indices in US dollars.””
Who’s confusing who?
As I find the above reply in Parliament rather confusing, I thought I would try to calculate and estimate the rate of return in S$.
2.45% real return in US$?
As GIC”s real annualised rate of return was 3.9 per cent in US$ for the last 20 years, with the US$/S$ exchange rate (Monetary Authority of Singapore’s (MAS) web site) declining from 1,6642 from 27 March 1992 to 1.2572 on 30 March 2012, I estimate that the real annualised rate of return in S$ was only about 2.45 per cent.
I believe it may be quite difficult to find any Sovereign Wealth Fund (SWF) or for that matter any fund manager to deliver 2.45 per cent real annualised returns, for the last 20 years.
Minus 4.35% real return in S$?
With regard to the nominal annualised rate of return of 3.4 per cent in US$ for the last five years, with the US$/S$ exchange rate declining from 1.5172 on 20 March 2007 to 1.2572 on 30 March 2012, I estimate the nominal annualised rate of return in S$ to be about minus 0.4 per cent.
After adjusting for inflation in Singapore of about 21.4 per cent from 2007 to 2012, I estimate the real annualised rate of return in S$ to be about minus 4.35 per cent.
Also, why is it that the GIC’s annual report can give the real annualised return in US$ for 20 years, but not for 5 or 10 years? Only the nominal annualised returns are given for 5 and 10 years.
“More or less” confusion?
If my computed estimates above are correct, I wonder whether Singaporeans are now “more confused” or “less confused” by the decision not to disclose the GIC’s returns in S$ too?
Why would continuing to disclose returns in both US$ and S$, like in the past, be “confusing”?
Do you see any logic in this?
Clarity and transparency?
Giving the returns in US$ and S$ may instead give more clarity and transparency to the performance of the people’s reserves.
Confusing for GIC, but not for Temasek?
If indeed disclosing GIC’s returns in S$ too is “confusing”, then why does Temasek disclose its returns in S$?
Avoiding NCMP’s question?
Even if we concede on the issue of “confusion”, why didn’t the Parliamentary reply give the return in S$, instead of avoiding NCMP Lina Chiam’s question on the GIC’s return in S$, altogether?
Surely, answering an MP’s question in Parliament, by giving the return in S$, can’t be deemed to be confusing to all the Members in Parliament too!