Notes from GIC sovereign wealth fund talk

[Adam Robbins]

Hey Finance Club,

Belatedly, here's a combination of Antonio's and my notes from the talk by the former CRO Singapore's Government Investment Corporation.  It was a very interesting talk.  Sorry about the ugly formatting. Feel free to contact us with questions.  Also, I'm always happy to talk about sovereign wealth funds anytime.

Adam

 

His name: Dr. Sung Cheng Chih

He was formerly CRO at GIC, he now advises the Norwegian SWF, and also performs technical assistance for new SWFs, most recently in Papua New Guinea.  He also now advises the Government of Singapore on its overall asset/liability position

World's Biggest SWFs: Norway (Government Pension Fund- Global), Abu Dhabi (Abu Dhabi Investment Authority), China (China Investment Corporation)

About Norway:

 

·         The Fund was established to avert the economic phenomenon known as “Dutch Disease” http://en.wikipedia.org/wiki/Dutch_disease

·         At the time the Norwegian economy was heavily dependent on the energy sector

·         It’s now worth $720 billion USD (probably biggest SWF in the world)

·          World leaders in terms of transparency

·         They can spend up to 4% of fund assets annually  (meaning they assume a 4% real return long-term)

·         They had a 40%-60% policy on investment on bonds and stocks and changed it around 2008 ( with a very good timing) to 60%-40% that explains for great returns

CIC – China

 

·      Comes from foreign reserves, so it has a different nature from most of them

·      SWAP with the Bank of China

·      Recapitalized banks in 2008 via it’s domestic subsidiary, central Huijin

 

Abu Dhabi

·      Oil

 

Singapore

·      Fiscal reserves which comes from great savings from both public and private sector

 

SWFs in general

·      Stand out because they are the true long term investors around.

·      In asset/liability sense, lowest leverage compared to other investor classes

 

 

Other Long term investors

·      Insurance companies

o   Most regulated

o   In crisis liabilities go up while assets go down. Then they are forced to de-risk portfolio normally by selling assets

o   When economic situations are good they put more risk in the portfolio. So they are selling low and buying high. This means they are behaviorally short term

·      Pension funds

o   Not of long term horizon!

o   Holland has the most developed pension funds in Europe. Civil servants pension fund is the biggest.

§  They introduced marking to market liabilities, not only assets

§  Interest rate and inflation SWAPS are of vital importance. But few investors will be willing to have long term fixed rates.

§  That is why they hedge only one third of liabilities!

·      Sovereign wealth funds

o    

·      Endowments

o   US endowments were the model for all institutional investors by 2 models: Swenson in Yale and Harvard with Mohammed El-Erian. Both were heavily invested in alternative assets when the crisis because they searched for higher returns.

o   Harvard had several problems with swaps and other instruments because they were margin called.

o   On private equity funds

 

Liabilities and regulation

SWF < endowments < pension funds < Insurance companies

 

Bridgewater wealth was put into a fund to preserve their money along generations.

 

Treasuries in the US are IOUs while Singapore has a method of getting the savings into investments

 

Really bad opinion about CALPERS  (and actually another CalPERS scandal broke since his talk—the former chairman of the board was indicted)

 

Canadian pension funds are also extremely well run.