How does Temasek know it does not handle CPF funds?

By SY Lee and Leong Sze Hian

We refer to Temasek’s letter “Temasek doesn’t invest or manage CPF savings” (Straits Times Forum Jun 4) to Straits Times’s article ““Ways to improve CPF”” published last Saturday.

The article wrote – Another elderly CPF member who declined to be named tells Insight: “Every time they raise the Minimum Sum, I suspect that it’s because Temasek or GIC lost money overseas.”

Temasek states in its letter, “Temasek does not invest or manage the savings of CPF members.”

Since the Central Provident Funds (CPF) funds have been transferred to the Government by way of special non-marketable government securities pegged to the respective interest rates of the different CPF accounts – does it then mean that the Government may utilise the funds at its discretion – such as for investment or to purchase assets?

If this is the case, how does Temasek (or for that matter any of the entities that manage Government funds and the Reserves), know for sure that the capital injections from the Government to them over the years  did not originate from the CPF funds (39 years in Temasek’s case)?

In this connection, unlike arguably, practically all other pension funds in the world, our CPF may not have the same standards of transparency and accountability – whereby the paper trail of pension funds may be more transparent, as the citizens know where the funds went to, how much the returns are, who exactly are managing what, the costs of managing the funds, where and in what form the fund’s assets are now, etc?

The level of transparency in investments by the Government 

In 2009, Mr Gautam Banerjee (Nominated Member) asked for transparency in the investment returns on our reserves by MAS and GIC:  (See parliament report here)

Mr Gautam Banerjee said,

“Sir, I thank the Minister for the explanations.  Given the complexity of the process, the inherent risk of the assumptions that have been used in this expected long-term rate of return and, obviously, the interest by everyone in making sure that the process is robust and transparent, would the Minister consider, at some stage, giving a little bit more information and communicating on some of these details so that there is confidence and acceptance of the new procedures?”

Mr Tharman Shanmugaratnam,  Minister for Finance said in reply to Mr Gautam’s question:

“Sir, first, of course, I can assure Mr Banerjee and Members that the process is a robust one.  We spend a lot of time on this.  First and foremost, within the GIC and the MAS – professional staff and the boards.  The Ministry of Finance gets into a fair level of detail in assessing the methodology – we are not professional experts but we have got to make sure that the methodologies are sound and are comparable with the best practices in the investment world. The President, advised by the Council of Presidential Advisers, does an independent check on the methodologies so as to assure himself that the final proposals are sound.

This is not a science.  It involves judgment, and this is judgment principally on the part of seasoned investment professionals.  The best way of ensuring that the system is robust is to ensure these internal processes of governance, first, of putting professional expertise into play; second, internal governance within the GIC and MAS; third, the Ministry of Finance doing its own due diligence on the methodologies used; fourth, the Council of Presidential Advisers taking an independent look and advising the President; and, finally, the President deciding on whether to approve the Government’s proposals.  That is really the basis of our system.  But I am sure the GIC will, in its annual reports in future, give a flavour of its thinking on the investment environment going forward.  It has done so in its last annual report and I am sure, going forward, it will also provide a feel for its thinking on how the investment environment is likely to shape up.”