Sometime back I said that I would blog in greater detail about Ong Teng Cheong’s unhealthy obsession about locking up the reserves. This is as good a time as any to write about the matter because of the Budget and because recently I read this: http://singaporedaily.net/2016/02/11/daily-sg-11-feb-2016/ which left out not so friendly details about the People’s President.
Ong Teng Cheong wanted to lock-up reserves forever and a day. He wanted future generations to press their noses at the blast-proof windows protecting the reserves. They would be able salivate at the reserves but despite their distended, empty bellies, not able to have access to the reserves until the president gave access.
He made this very, very clear when as DPM, he didn’t want any of the interest or capital gains from the reserves to be used by the govt of the day. He wanted the constitution changed for these to locked-up too arguing that the value of the reserves must be preserved. The only way of doing this was to lock up the interest and capital gains. Taz the People’s President for you.
It was one Ah Loong that wanted a more flexible regime of using the returns for the present generations. Ah Loong, of course, got his way and the over the years more and interest and capital gains have been allowed to be used. The returns on the reserves are being used as an endowment, with the Budget as the immediate beneficiary.
Related article: The theory and practice of an endowment fund
“I think is predominately a mindset,” says Truell*. “It is a mindset that believes that compounding cash flows over time is the most effective form of investment. It is partly also the mindset of the organisation. I have a board that consists mainly of very eminent scientists who are very empathetic to the view that you make progress over years and decades, not over the next quarter.” Truell is CIO of the Wellcome Trust
This yr, the net investment returns contribution, S$14.7 billion, means that overall Budget position is S$3.45 billion “surplus”*, amounting to 0.8% of nominal GDP. Economists say this overall surplus position will give the Government the fiscal space to enact off-Budget measures, should the economic outlook deteriorate significantly.
“Without the contributions from GIC and Temasek, there would have been a primary deficit* of almost S$5 billion. This is bigger than the S$2.3 billion deficit* in the post-financial crisis Budget in 2009, and the S$4.25 billion deficit* last year,” said Mr Ng. (CNA)
(*As defined by the S’pore govt, not the IMF. By IMF standards, S’pore’s surpluses from its Budgets amounting to 7% of GDP: not peanuts.)
Net investment returns contribution over the years. (Source: Ministry of Finance; Infographic: Linette Lim) CNA
All these monies would have been denied to S’poreans by the People’s President. No wonder the nuts in TRELand adore and worship him: he’d have screwed their handworking fellow S’poreans.
Finally, readers may be interested in these excerpts about GIC’s mgt of the reserves from a Bloomberg article that appeared in 2014
GIC has moved away from the endowment model of strategic asset allocation it had followed for a decade. In the process, it’s become one of the world’s most aggressive sovereign wealth funds.
As the new strategy came into effect in April 2013, GIC shifted away from its traditional asset-allocation strategy to a more active approach. Its fund managers can now deviate from GIC’s portfolio if there’s an opportunity to beat the market.
“The way of generating returns through holding diversified assets and just kind of waiting would not work well anymore,” CIO Lim says.
In GIC’s early years, the government ran it as a rainy-day fund.
“My cardinal objective for GIC was not to maximize returns but to protect the value of our savings and earn a fair return on capital,” Lee said on the occasion of GIC’s 25th anniversary in 2006.
Five years later, on GIC’s 30th anniversary, in his last public speech as GIC chairman, Lee urged the fund to take bold, strategic and forward-looking decisions.
“As GIC grows larger and more established, the impetus to follow conventional practices will grow stronger,” he said at an anniversary dinner. “This could lead to mediocrity.”
In 2012, GIC began a major review of its investment strategy — only the second such examination since the fund’s inception.