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Mainstream media gloss over GIC’s $269 million capital loss

By Phillip Ang

I refer to ST’s “GIC sells London property to Norway sovereign fund for $1.2billion” and GIC’s “GIC divests its 100% interest in the Bank of America Merrill Lynch Financial Centre (MLFC)”.
(I’m just expanding on this issue)

Both are simply announcements which have not disclosed the fact that the seven-year GIC property investment has yielded almost zero returns after costs.

In the ST article, it states the selling price of “£582.5 million (S$1.2 billion)” based on the recent exchange rate of about 1GBP=$2.06 and purchase price of “£480 million” in 2007. But why has the purchase price not been converted into Singapore dollar?

GIC had actually bought the property in June 2007 when the British pound was very strong against our currency at about 1GBP=$3.06. When converted into local currency, the purchase price would be a whopping $1.469 billion. GIC had therefore made a capital loss of about $269 million, a huge embarrassment to the government.

From June 2007 to October 2014, the British currency lost 33% against the Singapore dollar.

GIC would of course have made some rental gains which is nothing to shout about – the property was bought near the top of the stock market cycle and rental yields and property prices are inversely correlated. Any net rental gains would have probably been offset by the capital loss and transaction costs. Our CPF investment yielded close to nothing.

Shouldn’t the headline then read “GIC’s $269 million loss in UK property investment offset by net rental gains, took huge risks for peanuts”?

The ST has clearly tried to make the investment look fantastic by stating “GIC bought the 585,000 sq ft London office property from Merrill Lynch in 2007 for £480 million, beating investors such as Syrian-born tycoon Simon Halabi and Irish investor Derek Quinlan.”

What’s so great about an investment yielding close to nothing/fixed deposit returns? The Syrian tycoon and Irish investor must be the ones having the last laugh and are glad that GIC had beaten them to the ‘fantastic’ investment!

When GIC bought the Merrill Lynch office building in 2007, GIC Real Estate’s president Seek Ngee Huat had described the property as “a strategic acquisition which meets our investment objective of maintaining a diversified portfolio of long-term assets across all property sectors in gateway cities around the world”. Seven short years later, “long-term” investing is no longer fashionable and its “strategic acquisition” is quickly disposed of because it has a new strategy?

Our $1,468,000,000 CPF investment has yielded almost nothing for seven years. Is this the reason why our CPF returns continue to be the lowest in the world?

GIC appears to have a very simple strategy to profit from our CPF – it invests in higher-yielding foreign assets, pay CPF members low returns and keep the balance for itself. It has ignored forex risks because the PAP has accorded GIC ‘private limited’ status which enables it to be unaccountable to CPF members.

Investing $264 billion of our CPF in a foreign currency contradicts the government’s policy of gradual appreciation of the local currency. Why would any government invest hundreds of billions of dollars knowing full well its policies will adversely affect its investment returns in future? Don’t CPF investments have to be eventually converted to Singapore dollar to be returned to CPF members?

But with the legislation of more than $200,000 Minimum Sum (OA and MA) by next year, it appears the PAP never had any intention of converting CPF investments into local currency and return CPF monies to their rightful owners.

It is a fact that there are tens of billions of dollars in CPF investments which are yielding ‘peanut’ returns/underwater. To allay CPF members’ fear and suspicions that all may not be well at the GIC, it should disclose how CPF members are paid – if there are huge capital gains from other investments, other investments yielding extremely high returns, etc GIC should disclose them to the public.

Transparency is key to citizens’ trust without which CPF members will continue to suspect there are many more subpar CPF investments in GIC.

This article was first published on likedatosocanmeh.