UNCLAS SINGAPORE 000951

STATE PASS USTR

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV SN

SUBJECT: SINGAPORE SOVEREIGN WEALTH FUND SHOWS SHARP LOSSES

REF: 08 SINGAPORE 1059


1. Summary: Singapore's largest sovereign wealth fund lost 20
percent of its value in the last financial year ending in March, but
has since made up much of the losses in the ensuing recovery in
financial markets. In only its second annual report in its history,
the Government of Singapore Investment Corporation (GIC) detailed
changes in its asset mix toward alternative investments like natural
resources and private equity, and plans to expand holdings in
emerging markets. The United States is still GIC's largest
destination for investments, though it recently divested half its
multi-billion dollar investment in U.S. bank Citigroup. End
Summary.

GIC Down, But On the Rebound
--------------


2. On September 28 GIC released its annual report, the second in
its 28-year history after issuing its first report in 2008,
disclosing an annual loss of 20 percent in its portfolio in the
financial year ending March 31. GIC said it had sought to diversify
its portfolio in recent years by broadening its asset holdings into
private equity and real estate, but nevertheless suffered
substantially in the global fall in stock markets and other assets.
A reduction in public equity holdings in 2008 prior to the crash
helped ease some of the losses. With the year's losses, GIC
reported that the fund's average real (inflation adjusted) rate of
return over the past twenty years fell from 4.5% to 2.6%. However,
GIC noted that with the recovery in global markets since the end of
March the portfolio has recovered more than half its losses.


3. GIC is the largest of Singapore's two sovereign wealth funds,
tasked with investing a portion of the country's foreign reserves
overseas. Although GIC discloses only that it manages in excess of
US$100 billion in assets, estimates of its value have ranged as high
as US$400 billion. A September 28 Wall Street Journal article
quoted a source that GIC's portfolio currently stands at
approximately US$188 billion.

Back into Equities
--------------


4. GIC's report said that although the fund reduced its equity
holdings from 44 to 38 percent during the last financial year, it
has since returned its stakes in public equities to pre-crisis
levels. Alternative investments like real estate, private equity
and natural resources increased from 23 percent to 30 percent of
holdings. GIC also increased its cash holdings from seven to eight
percent despite earlier speculation the fund would take advantage of
the financial crisis and use its cash hoard to pick up distressed
assets on the cheap (reftel).

U.S. still tops for investments
--------------


5. The United States continues to be the destination for the
highest percentage of GIC assets, with 38 percent of total assets
compared to 34 percent in 2008. Its Europe holdings dropped from 35
to 29 percent while its exposure to Asia increased only slightly to
24 percent. GIC's report said the changes in investment
destinations resulted solely from a selection of new investment
opportunities rather than a concerted strategy of targeting
geographical regions. Nevertheless, GIC Chief Investment Officer Ng
Kok Song told a press conference that GIC's investments in emerging
markets would likely increase as the fund expected global economic
growth to be higher in emerging rather than developed markets.


6. GIC shed half its holdings of U.S.-based Citigroup earlier in
September, realizing a US$1.6 billion gain. Its original US$6.88
billion investment in Citi early in 2008 had come under criticism
after a sharp fall in the stock's value, but built-in downside
protections in its preferred shares saved the fund from losses. GIC
retains a 4.9 percent stake in the bank. GIC's 2008 investments in
Swiss bank UBS have been less lucky with its nearly US$11 billion
purchase still down by nearly half.

SHIELDS