This year marks the 40th anniversary of GIC. In celebration of this milestone, Made of Bold commemorates the founding leaders’ vision of forming an entity dedicated to managing Singapore’s reserves. These bold stories have laid the foundations of GIC’s values and purpose in securing Singapore’s financial future.
These bold stories are from the publication Bold Vision: The Untold Story of Singapore’s Reserves and Its Sovereign Wealth Fund.
A Singular Man
As the economic architect of modern Singapore, Dr Goh Keng Swee wrote many budget speeches and policies. But unbeknownst to many, he was largely responsible for the first chapter of the nation’s bold reserves management story.
After separation, Singapore was keen on establishing a Common Currency arrangement with Malaysia. However, the status of a piece of land at Robinson Road in Singapore became the focal point for dispute, leading the island nation to stand its ground and inevitably resulting in a currency split.
Donning A Straitjacket
Amidst challenging social, political and economic uncertainties, a young nation stood against conventional wisdom and established a currency board system. This decision built confidence in the Singapore dollar in the early days of nation-building.
The Sterling Raj
Singapore was at the mercy of sterling’s fate – it was obliged to hold its reserves in sterling but a devaluation of the pound would mean substantial foreign exchange losses for the small nation. The Sterling episode saw a heated exchange of letters between then-British Chancellor of the Exchequer Roy Jenkins and Dr Goh Keng Swee.
Dr Goh Keng Swee and his team circumvented a US-led embargo to buy gold with an ingenious and clandestine idea of using two halves of a torn dollar bill to verify the identity of the officials involved.
A Productive Interregnum
When MAS was formed in 1971, it started off with a blank canvas – an unheard-of mix of a quasi-central bank and a currency board. The institution was not just permitted to, but tasked to invest for returns and profit, which was a pioneering approach to investing reserves for returns at the time.
Genesis of an Idea
GIC was conceived in just 7 months – from a mere idea in Dr Goh’s mind to the day he issued the press statement to announce the establishment of a new investment company.
Today, GIC may be recognized as one of the top sovereign wealth funds in the world, but its story has a very humble beginning – the company’s first Managing Director began his tenure with only a desk. There was not even a chair, until he found one in an unused room.
By Tharman Shanmugaratnam,
Senior Minister and Deputy Chairman, GIC
GIC’s fortieth year comes in the midst of the most severe crisis the world has seen in over 70 years. More than any previous episode, the crisis has highlighted the importance of the organisation and the confidence it brings to Singapore.
GIC’s work in growing our reserves steadily over four decades has allowed the Government to draw on the reserves in an unprecedented way during the COVID-19 pandemic, to support the economy and jobs, and to steady the nerves of Singaporeans.
This book describes how GIC has done so. Its sustained record owes itself to the philosophy and organisational ethos ingrained by its founding leaders, and the expertise and global partnerships progressively built up over the years.
GIC was founded in 1981, but it was part of the larger approach to public finances that Singapore had adopted since its independence in 1965. Thinking long-term is at the core of the philosophy: thinking not just one year or one term of government at a time, or even one generation at a time, but about the interests of both current and future generations. It is why the government is bound by constitutional safeguards that cap the spending of investment returns, require that its budgets are balanced across each term of government, and protect revenues generated from the government’s sales of land.
Investing the government’s reserves for long- term returns has been the other half of this approach to public finances. GIC was an unconventional idea, and the first sovereign wealth fund that was not funded from commodity earnings. It was the vision of Dr Goh Keng Swee, then-Deputy Prime Minister and Chairman, Monetary Authority of Singapore, that the nation would be better served by government taking surplus reserves off the balance sheet of the central bank, to be invested at risk for long- term returns.
GIC’s long-term orientation has enabled it to invest in a widely diversified global portfolio of risk assets, including illiquid assets, very different from the way reserves are managed by central banks. It has also allowed GIC to weather repeated global crises with confidence, and to take short-term losses as the price of investing for good returns over the longer haul.
GIC’s healthy performance has also reflected its organisational culture, and the capabilities it has built up. The ethos that was instilled from its very beginning, under its first Chairman, then-Prime Minister Lee Kuan Yew, continues to define the organisation. Generations of GIC-ians have pursued their mission with integrity, discipline and a sense of purpose. GIC is run on a strictly meritocratic basis, and puts great emphasis on developing team and organisation-wide expertise. Its governance structure, with a clear separation of responsibilities between the board and management, encourages the highest standards of professionalism.
We must preserve and build on this 40-year GIC tradition. The demands of the decade ahead have never been greater, or more complex. The COVID-19 pandemic will not be over soon, and repeated economic disruptions cannot be ruled out. At the same time, there have been few periods in history where US equity valuations have been as high as they are today, and none where they have sustained such highs. Public and private debts have grown rapidly. The odds of inflation rising above trend and interest rates spiking are also growing, which could further undermine the role of bonds as a buffer against equity risk.
GIC will also have to navigate an environment shaped by more fundamental challenges and opportunities. In an environment of lower expected returns for most asset classes, it will have to seek out business models driven by new technologies and innovation that can cut across market cycles. Heightened geopolitical tensions, and the possible emergence of different technological ecosystems, will add complexity to investment decisions. The transition to a low-carbon economy, already a consideration for GIC as a long- term investor, will surely also grow in importance.
GIC is prepared for this new future. It is developing new approaches to diversify its portfolio and invest with agility, so as to create new sources of returns. It is building on its formidable base of skills, and its valuable network of partners. But in all of this, GIC’s culture of integrity and disciplined ambition remains the key. The odds are that it will succeed as it writes the next chapter of the GIC story.