It was reported in the media today (13 Jul) that Singapore’s GIC “continues to deliver steady long-term returns”. Its benchmark 20-year annualised real rate of return between April 1998 and March this year was 3.4 per cent above the rate of global inflation (that is, excluding inflation).

In nominal US dollar terms – not adjusted for inflation – GIC’s portfolio returned 5.9 per cent a year for the 20 years to March 31. GIC however, did not give the returns in terms of nominal SGD dollar.

“The line has come down… even though historically, this number hovered around 4 per cent real rate of return over and above global inflation,” GIC chief Lim Chow Kiat said at a briefing yesterday. “That is because the high returns at the beginning of the period – the late 1990s – have dropped out of the 20-year window.”

Govt borrows from Singaporeans’ CPF to invest through GIC

According to GIC website, it said that MAS and GIC would manage the “proceeds from the Special Singapore Government Securities (SSGS) that are issued and guaranteed by the Government, which the CPF Board has invested in with the CPF monies”.

“So while the CPF monies are not directly transferred to GIC for management, one of the sources of funds for the Government’s assets managed by GIC is the proceeds from SSGS,” it added.

GIC is, of course, under the purview of the government also. To put it simply, the government would borrow monies from Singaporeans’ CPF at certain fixed rates and invest these monies through entities like GIC and MAS.

No mention of GIC returns in SGD dollar

With regard to returns, financial blogger Leong Sze Hian noticed that since 2009, GIC has stopped reporting its returns in SGD.

When pressed by opposition in Parliament in 2012, then Minister of State for Finance Josephine Teo explained that the GIC stopped publishing its nominal returns expressed in Singapore dollars so as to “avoid confusion” when comparisons are made with other fund managers or global indices.

GIC uses the nominal return in US dollars as that is the commonly expressed basis internationally for comparisons of investment returns achieved by global investment funds, she 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,” she told the House then.

But that problem can easily be solved by publishing returns in both USD and SGD in GIC’s reports. By not disclosing its returns in SGD, it appears that the government may be trying to stop Singaporeans from linking GIC’s returns to the CPF returns which Singaporeans are getting.

That is to say, if GIC is seen to be performing better, the government may be afraid that Singaporeans will start demanding higher CPF payouts for their CPF accounts.

So, what is the return in S$?

Using the exchange rates from MAS website, 1.606 at end March 1998 and 1.3117 at end March 2018, Mr Leong has calculated that in nominal SGD terms, GIC’s portfolio return would be 4.8 per cent a year for the 20 years to March 31.

And he has also calculated that the average CPF interest rate for all the CPF accounts would be about 3.6 per cent ($7.51 billion % earned divided by $208 billion total net balances in 2011), using public information.

Note that the individual CPF returns for each Singaporean will be different due to the complexity introduced by the government in recent years:

CPF interest rates:

  • 2.5% (Ordinary Account)
  • 4% (MediSave and Special Accounts)
  • Extra 1% on first $60,000 of combined balances (with up to $20,000 from OA)

After 55:

  • 4% (Retirement Account)
  • Extra 1% on first $60,000 of combined balances
  • Another extra 1% on first $30,000 of combined balances (with up to $20,000 from OA)

However, as Mr Leong doesn’t have the latest information from the government, the 3.6% average CPF return is just a very rough estimate. Details will have to be obtained from the government through opposition asking the right questions in Parliament.

Assuming Mr Leong’s calculation is correct, is it then fair for Singaporeans to get, on average, 3.6% while GIC gets 4.8%? Note that a 1% difference would mean billions of dollars from GIC.

Mr Leong also advocated that the government should publish its investment returns in SGD terms, in the interest of good transparency practice.

“This would dispel the consistent talk in social media and even sometimes in our Parliamentary history, that the Government has been keeping a lot of the returns derived from our CPF funds, vis-a-vis the CPF interest rates paid to Singaporeans now and historically,” he said.

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