Impact of GIC's Divestment in UBS on Rate of Return for Government's Investment Portfolio
Ministry of FinanceSpeakers
Summary
This question concerns the impact of GIC’s reduced stake in UBS on the government’s investment portfolio returns and the specific amount of realized loss from the divestment. Minister for Finance Heng Swee Keat explained that annual performance figures already incorporate both realized and unrealized gains, so the divestment merely converted existing unrealized losses into realized ones. He maintained that government policy precludes disclosing details of specific transactions, as the focus remains on long-term, overall portfolio performance rather than individual deals. The Minister emphasized that GIC must take calculated risks to achieve returns and that it is unrealistic to expect every single investment to avoid loss. He noted that as of March 2016, the overall portfolio achieved a 20-year annualized return of 4% above global inflation, which includes the UBS investment.
Transcript
28 Mr Png Eng Huat asked the Minister for Finance what is the impact of GIC's reduced stake in UBS on the performance of the Government's investment portfolio in terms of annualised rate of return for five-year and 10-year time periods respectively and how much is the realised loss of the UBS divestment.
Mr Heng Swee Keat: The Government of Singapore Investment Corporation's (GIC's) performance over five- and 10-year periods are published annually by GIC on its website. These figures reflect, in aggregate, both realised and unrealised gains and losses of all investments, including the Union Bank of Switzerland (UBS). Hence, the reduction of GIC's stake in UBS does not, in itself, change these figures. It only changed unrealised losses, which were already reflected in the performance figures, to realised losses.
Mr Png had asked what the realised loss of the UBS divestment was. It is not the Government’s policy to discuss details of specific investment transactions. I would like to reiterate that the investment performance of GIC should not be evaluated based on any single transaction. Rather, the Government’s focus is on GIC's performance on an overall portfolio basis over the long term. While it is disappointing that the UBS deal did not turn out as expected, investing is about taking calculated risks in anticipation of returns. Some returns may materialise, some may not. It is not realistic to avoid any loss for every investment as that would require GIC to be completely risk-averse.
What is more important and relevant is that the overall portfolio delivers creditable long-term returns over and above inflation. As at 31 March 2016, GIC achieved a 20-year annualised rate of return of 4% above global inflation. This includes the investment in UBS.