Costas Paris & P.R. Venkat
The Wall Street Journal
Government of Singapore Investment Corp. suffered a loss around 59 billion Singapore dollars (US$41.6 billion) in the fiscal year ended March, making it one of the worst years for the sovereign wealth fund since it was established in 1981, a person familiar with the situation said Tuesday.
"The equities investments suffered the most, followed by falls in property valuations. It was one of the worst years ever," the person told Dow Jones Newswires.
The person said GIC's portfolio now stands around S$265 billion.
GIC is the world's fourth largest sovereign fund in terms of money managed, according to Deutsche Bank, with high-profile investments in Western financial institutions like Citigroup Inc. and UBS.
Earlier in the day, GIC said in its annual report that its portfolio lost more than 20% of its value in the last fiscal year.
However, it said, the recent rebound in global stock markets has helped it recover more than half of the loss.
The person said GIC's property valuations are also recovering strongly.
GIC said in the report that it had an annualized 5.7% return in U.S. dollar terms over the last 20 years from 7.8% a year earlier. Its nominal return over 20 years in Singapore dollar terms was 4.4% compared with 5.8% a year earlier.
"Like many large institutional investors, GIC's portfolio had been impacted in the severe global downturn of 2008," said Tony Tan, GIC's deputy chairman.
GIC manages the city-state's foreign exchange reserves.
"By end-August 2009, global stock markets have recovered 48% from the lows of March 2009 even though they are still down 35% from their peak in October 2007," GIC's group chief investment officer Ng Kok Song said.
GIC said it has confidence in the long-term prospects of Citigroup and UBS.
It holds a 9% stake in UBS by way of preferred shares it bought in late 2007 for 11 billion Swiss francs ($11 billion).
Last week, it said it cut its stake in Citigroup to below 5% from over 9% after it exchanged its convertible preferred stock in the bank to common stock. It made a profit of US$1.6 billion from the sale. GIC had invested US$6.88 billion in Citi in January 2008.
"The UBS investment will take longer to recover. While both banks still face challenges in returning to profitability, we maintain our confidence in their long-term prospects," Ng said.
Ng said that in the short-term, less funds will be available for leveraged investments as lending institutions will face more onerous capital-adequacy requirements and asset securitization markets remain impaired.
"Regulatory intervention is likely to dampen risk-taking. Investment vehicles such as hedge funds and private equity funds will be subject to greater disclosure of their activities," he said.
The executive also said governments and central banks may face pressure not to withdraw fiscal and monetary stimulus packages because of high unemployment levels.
"These changes will present both opportunities and risks that will require GIC to adapt its investment strategy accordingly," Ng said.
He said economic growth will be higher in developing countries rather than developed economies.
GIC said it cut its exposure to equities by more than 10% from July 2007 to September 2008, but has now increased its exposure in global stock markets to pre-crisis levels.
The fund invested 38% of its portfolio in equities last year from 44% a year earlier, while exposure to fixed income such as bonds was 24% from 26%. About 30% of GIC's portfolio is invested in real estate, private equity, venture capital and infrastructure assets, from 23% a year earlier.
The fund increased its exposure to the Americas to 44% of its portfolio last year from 40%, while in Europe it cut its exposure to 29% from 35%. Asia accounted for 24% of its portfolio from 23% earlier.
Temasek Holdings Pte. Ltd., Singapore's second sovereign wealth fund, said its portfolio shrank to S$130 billion in the year to March from S$185 billion a year earlier due to losses in equities investments.
It said that as of July, the portfolio stood at S$172 billion as a result of the recovery in global equities.
Earlier in the year, people familiar with the situation told Dow Jones Newswires that in calendar 2008, GIC had lost around S$50 billion.