GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION

GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION:

(Investment guidelines): 1.

Miss Penny Low asked the Minister for Finance (a) what are the mandate and investment guidelines of the Government of Singapore Investment Corporation (GIC); (b) what is its performance record so far, compared with its peers; (c) how have these guidelines changed since GIC's inception in 1981; and (d) whether the guidelines are too conservative or liberal for (i) a fund size that has multiplied substantially over the years and (ii) the investment climate going forward.

The Senior Minister of State for Finance (Mrs Lim Hwee Hua) (for the Minister for Finance): Mr Speaker, Sir, the Government's mandate for GIC is to achieve a reasonable rate of return above global inflation, over a long-term horizon. In the last 20 years to March 2008, the average annual rate of return of the portfolio was 5.8% in Singapore dollar terms. This was 4.5% above global inflation. This data and more information can actually be found in the GIC Report published in September 2008.

GIC has performed well over the long term, in accordance with its mandate. In the current financial meltdown, GIC's investments have lost value, just like any other institutional investors. The overall value has, however, fallen by much less than the decline in global equity markets of 42% for 2008, mitigated by GIC's decision early in the crisis to reduce its equity market exposures, and its portfolio diversification strategy. Further, GIC takes a long-term approach to investment management, which enables it to ride through the cycles, including the current severe downcycle. It is difficult to make meaningful direct comparisons between the performance of GIC and other

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institutional investors as the investment horizons, objectives and parameters vary widely.

The guidelines for GIC have not changed fundamentally over the years since its inception. However, GIC has gradually evolved its asset allocation strategy, from the early days when its emphasis was on fixed income instruments, towards an increased allocation for higher risk and higher returns investments like equities and alternative investments. This evolution has resulted in a more diversified and balanced portfolio, aimed at achieving long-term returns, but keeping to an acceptable risk level.

The investment approach of seeking to achieve reasonable returns above global inflation, within overall risk tolerance parameters set by the Government, is appropriate for our purpose. It will grow the real value of Singapore's reserves over time, which provide an important cushion for crisis situations like the current economic downturn, as well as generate a continual stream of income that can contribute towards the Government's budgetary needs.

The Government will continue to review from time to time whether the guidelines are appropriate, given the investment objectives and the investment climate going forward.

Miss Penny Low (Pasir Ris-Punggol): Will the Senior Minister of State clarify if investment guidelines should also alter according to the fund size? Surely, a fund size that has just started at $1 billion and now at hundreds of billions, may render the need to alter the investment guidelines to make it either more liberal or more conservative.

Mrs Lim Hwee Hua: Sir, yes.

Miss Penny Low: Can the Senior Minister of State elaborate on how it has changed over time then?

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Mrs Lim Hwee Hua: Sir, as I said, the allocations, the diversification into the different asset classes, have taken into account the growing size of the reserves as well over time.