Published May 1, 2008

GIC ready to add more quality banks to portfolio

MM Lee says Citi, UBS presented rare opportunity; explains transparency conundrum


(SINGAPORE) The Government of Singapore Investment Corp (GIC) may add more banks to its portfolio which already includes UBS AG and Citigroup Inc, but it still cannot be overly transparent with its investments even with the scrutiny now faced by sovereign wealth funds, Minister Mentor and GIC chairman Lee Kuan Yew says.

GIC took a long-term view when it pumped 11 billion Swiss francs (S$14.7 billion) into UBS last December and invested US$6.88 billion in Citigroup in January this year, and it remains open to more investments in banks of similar quality, said Mr Lee.

'If there are other banks of the quality of the two that we bought into, with the promise and the capabilities and inherent capabilities to recover, we have got the liquidity to meet it, to make such an investment. We will not rule it out,' the senior statesman told Bloomberg Television in an interview on Tuesday.

The full interview will be telecast next Monday.

GIC's very long investment horizon is one key reason why it is investing in currently troubled banks like UBS and Citigroup when other investors - like Warren Buffett - have turned away, Mr Lee said.

'He has a different view. He has to give returns to his investors year by year. We don't have to. We have to think in terms of the next 10, 20, 30 years. We are buying into something which we intend to keep for the next two, three decades and grow with them.'

While both UBS and Citigroup have been hit by more losses and bad news since GIC invested in them, the two banks presented investment opportunities which may not come around again.

'Will there be another Swiss bank like UBS for wealth management? I doubt it. We doubt it. That's why we invested in it. Will it get back to its pre-crisis prices? Maybe not immediately. Five years, seven years, 10 years, with good management, good conditions? We will know in 5-10 years. And GIC is a long-term investor,' he said.

'Similarly for Citigroup. It has got an enormous spread worldwide as a retail bank. It has gone into other kinds of banking services.

'Maybe we're wrong, and we'll pay for it. But so far, we've grown this fund. So, on the whole, we've been right eight cases out of 10. So we're not so bad. We may be wrong - these may be the two cases out of the 10 that we're wrong. But that would be very sad for us.'

The rise of sovereign wealth funds (SWF) around the world, and the reaction to them, need not necessarily put pressure on Singapore funds like GIC, Mr Lee said.

'The markets and the governments know the difference between a Chinese fund and a Russian fund, and a Singapore fund, or an Abu Dhabi fund . . . We are not in there to manipulate or take charge of the economy. We're there to have a good return.

'We're not Russia wanting to corner the gas market, or the gas pipeline or the sale of gas of European countries. These are our hard-earned savings, which we must invest prudently, carefully, taking the kind of risk which we think is justified for the kind of returns we expect.

'I don't expect much trouble from the governments. Some of the governments have made it quite clear that they welcome us. And I would be surprised if the US government or the US Senate says, 'no, Singapore is a dangerous investor'.'

Mr Lee said GIC has to be 'careful' about calls for more transparency. 'There are reasons why we do not think we should be too transparent. One, people will anticipate our moves. No company likes to have its moves anticipated. If you make your moves very clear, people can predict what you will do next, and forestall you or pre-empt you.

'Second, you raise expectations of your own people,' said Mr Lee, explaining why GIC discloses its profits and losses over a five-year or 10-year period, and not year by year.

'If we do it year by year, we will have our ups and downs. If you have good profits, people will say, 'let's spend'. If you have bad profits, 'we can't spend this year', they will say. 'Oh, it will hurt'.

'These are populist pressures which we have to buffer,' Mr Lee said.

GIC is the world's third- largest sovereign wealth fund, with US$330 billion in assets under management, according to Morgan Stanley in February. It ranks behind the Abu Dhabi Investment Authority with US$875 billion and Norway's Government Pension Fund with US$380 billion.

'A government has to take the risk and say this is as far as we can go. We will build up this fund for the future for all kinds of contingencies, like a major worldwide recession or depression,' Mr Lee said.