Home > Silliness and stupidity > More money lost via our sovereign funds

More money lost via our sovereign funds

I haven’t been posting lately. No worries, I am not asked to shut down by some government authorities or whatever nots. I did not post on the Presidential Election simply because it’s pretty pointless to talk about a system created to protect the ruling party in the first place. I have mentioned before, that if the PAP sincerely meant the Presidential role to safeguard the national reserves, then no one affiliated, past or present, to the ruling party should be qualified to run for presidency. As such, I rest my case.

Anyway, the real reason I wasn’t updating or posting is due to my heavy workload. Taking a leaf from all the PAP MPs, some of whom are so desperate to tell the whole world how hard working they are and how much they are contributing to Singapore in order to justify their enormously large ‘pocket money’ through Facebook, I would like to say that I too am a very busy professional contributing to the Singapore’s economy (except that I don’t have that extra $15,000 a month for sitting on a chair in an air-con room and act interested in listening to people in the evening). For those who follow the news, I’m sure you know who or what I am talking about.

Today’s Bloomberg showcase an article that easily boils Singaporeans’ blood and would very much have hurt the ruling party’s general election and presidential election results if the recent financial crisis is to happen a few months earlier.: That GIC has lost billions and billions of dollars with their recent investments in the banks, notably UBS and Citibank. It’s a joke that it requires the elected president to approve $4 billion to cope with the economic downturn (disclosed in the last PE) while the GIC can easily lose twice as much (not counting Temasek, Bank of America, and Citibank’s losses). Where’s the risk management? Where’s the financial controls? Where’s the diversification? [For the article, click here]

True is, the approval card to boast to the world that a small country like Singapore can become the largest shareholder of a famous Swiss bank proves too much an attraction. Blinded by inflated ego and over-optimism thinking how on earth can such a big bank flop, GIC dives into throwing money into banks that were already showing signs of weak capital structure back in 2008. To be fair, it’s based on hindsight that I criticize their investments. But wasn’t the Lehman incident enough to warn them about bank stocks? Moreover, the magnitude of losses estimated by Bloomberg only shows how ‘un-diversified’ we are.

But the one point that I really cannot stand is the government’s and GIC’s inability to address the nation that they have made a mistake, that they have made a wrong investment move, that they have lost a lot of money. Evidently, here we have a PAP member, Inderjit Singh, a member of Parliament for the ruling People’s Action Party, and CEO of Infiniti Solution Pte saying: If we consider a longer-term horizon, then some of the issues like what UBS faces today should not be seen as failed investments.”

This, is, totally, bullshit. If we always use a long-term measurement, going by historical records and because the world is not ending, almost ANY investment would become a gain in the long run. But of what use is it using a hyper-long horizon? In the long run, says Keynes, we’re all dead! There’s no point! The question I would ask is, if GIC always takes in a long-term view in investment, why not Temasek? Why did Temasek realize the losses on Citibank, Bank of America etc? And did Temasek say anything about their loses? It only illustrates how stubborn the ruling party is!

And Singaporeans can and should be angry. Which shareholders will not be angry when their investments turned sour? The only irony is we shareholders don’t even know how much money we have invested and how much profits and loses we have made. To rub salt on the wound, we have to hear it from a third party (in this case, Bloomberg). Don’t even bring up the topic about how Singaporeans ‘forget’ the times when the fund earns money, as postulated by so many pro-PAP members. It’s precisely the basic job function of GIC and Temasek to earn profits. If they are incapable of doing so, then they shouldn’t be risking the money away and both funds should be closed.

Fact is, PAP will not apologize for anything (except when it’s nearing an election and they need some sympathy points. Trust me when I say more tears will flow in GE2016 when there’s a bigger group of young voters who are typically very idealistic and liberal). Simply because apologizing means you are weak. It means you are incapable. It means you are not fit to remain in power. Do you think they’ll want you to know that they are incapable? They’ll do all they can to disguise their incompetency!

P.S. Admittedly, this is an emotional post. But when you have don’t have transparency, no admittance of mistakes, blatant announcement of how capable the cabinet is to justify the ridiculous pay scale, telling the whole world that Singapore is unique because of the ‘highly talented’ and ‘corruption-free’ ministers, historical records of underhand methods in elections, and the list goes on….you can’t expect us ‘noises’ and ‘untalented’ citizens not to have a superbly high expectation of the ruling party. After all, you marketed yourselves to be extraordinary in the first place.

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  1. simonsays
    September 27, 2011 at 12:08 pm

    They have always make the distinction that GIC takes the long term view. Whereas Temasek takes the short term. I believe the former is more conservative, and latter is more aggressive. But is all just speculative since they won’t come upfront to say it.

    To your point why Temasek kept silence on its losses..I have no answer, other than perhaps because it’s run by the PM’s wife, so is very awkward for anyone (internally) to ask for accountability. The recent resignation of UBS CEO goes to show, is far easier to fire Chip Goodyear or Oswald the outsiders, but when it comes to own uncles or wife, is another thing all together.

    Soon, they will say not ALL the money in SWF belongs to Singaporeans. Only part of it is = CPF. Rest belongs to the State, so accountability is not required to the people.

  2. September 27, 2011 at 5:24 pm

    Long term view, it’s ok?

    Would someone please calculate for me the opportunity cost of hundreds of billion of dollars losses in the SHORT TERM!!!

  3. Kain
    September 27, 2011 at 11:25 pm

    I am unhappy about how the investment went but you are not being fair to Indejit Singh. You should include the latter part of his answer

    “However, from a Singapore Inc. perspective, with the two sovereign wealth funds not coordinating, I feel they have overinvested in the financial sector.”

    And he has a point.

    • September 28, 2011 at 4:39 pm

      That’s a fair statement. But let’s take another perspective. Did GIC alone overinvest in the financial sector? At $11 billion for the initial investment, that’s a lot of money. And we haven’t include the investments in Citibank and any other banks. Given that the latest report from GIC stated 42% is invested in America, I wouldn’t be surprised if the loss is a lot larger than what was reported in UBS alone. If GIC’s portfolio is to mirror Temasek, then the largest industry invested would be the finance industry. But because it’s not disclosed, we will never know. Therefore, the point that Indejit Singh brought up is redundant. You can’t shift the blame of losses of GIC on ‘overinvestment’ in a particular industry by 2 funds managed by 2 different groups of people.

      If GIC and Temasek are coordinating, why the need to separate into 2 different funds managed by 2 different groups of people when you can achieve economies of scale? And if Indejit Singh felt that both have overinvested in the financial sector, there’s only 3 possibilities: 1) Temasek over invest in financial sector, GIC is well diversified, but total net is still over invest. 2) Temasek is well diversified, GIC over invest in financial sector, but total net is still overinvest. 3) Both Temasek and GIC over invest in financial sector so total net is over invest. Either way, we see either Temasek and/or GIC is not diversifying their portfolio well. It is impossible to say either one is not over investing and yet say together, both have over invest. As such, I conclude once again that Indejit Singh’s comments are redundant.

  4. Alan Wong
    September 28, 2011 at 2:39 am

    Can long term investments pose a much lesser risk ? What if the total investment is wiped out as in some fraud cases ?

    The obvious question now uppermost in our minds is why did they let some financial idiots to be in charge of those funds in the first place ? And why are they still around now when they lost heavily in their investments such as Shin corp, Bank of America, etc. during last few years ?

    Is it a case of PAP meritocracy, my foot ?

  5. patriot
    September 28, 2011 at 6:56 am

    Well, there are always opportunities to win them(losses)
    back with profits within the next 3 decades. Markets are
    cyclical and the cycle of turn-around may even happen
    within a year.
    Has there been a depression that lasted more than a
    decade?
    All that the Decision Makers must pray for is that he or
    she does not die when the loss(es) are substantial. Or
    else they will leave behind infamies for posterity and
    history.

    • September 28, 2011 at 5:01 pm

      No depression lasted more than a decade to date but it does seems that the business cycle is getting shorter and shorter. What I do know is it’ll take a very very long time to recover for a share that had dropped 80% in value. While GIC insisted that they are investing for the long term, it is stated in their latest management report that the fund did sell down equities to ‘protect the portfolio’ during the financial turmoil in 2007-8. So the ‘long-term view’ doesn’t seem to apply in this case. Long-term view is a convenient excuse but in reality, capital preservation is more important than whatever ultra-long term view. And it seems that GIC do understand this. It’s just politically suicidal to admit the losses they have made in investments.

      For every 10% drop in share price, it’ll take 11.11% to recover back to the initial price level. At 80% drop in price, we are looking at the firm’s ability to generate an additional 400% return in value just to return back to the price of investment. Capital preservation ranks among the most important lesson by Warren Buffet and it’s not difficult to see why mathematically.

  6. kjeyaretnam
    October 11, 2011 at 2:29 pm

    http://sonofadud.com/2011/09/23/gic-ubs-and-the-death-spiral-of-your-cpf-funds/
    Thank you fro an interesting read. You may be interested in my article on the death spiral of our CPF funds.

  7. Curious George
    October 12, 2011 at 2:07 pm

    Whatever Temasek & GIC invests in, we sell. Whatever they sell, we buy. Wonder what ivestment research and processes the scholars in there use to take contratrian views that lead to such unrecoverable losses! Any ordinary investor can do better. Perhaps with less resources, the mind is sharper.

  8. kauhong
    November 1, 2011 at 6:24 am

    Hi. Please check this out ….. GIC has investment in Olympus. I think around 2%. Share price 50% wipe out recently.

    Strangely quiet from main stream media yah?

    • November 1, 2011 at 5:17 pm

      Haha wow, you monitored GIC’s investments? Thanks for pointing it out but maybe the main stream media are not even aware that one of GIC’s investment lost money. It’s better to rely on foreign sources for major updates on our two sovereign funds 🙂

  9. December 13, 2011 at 5:05 am

    What’s up, just wanted to say, I loved this blog post. It was practical. Keep on posting!

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