GIC returns impressive? I beg to differ
And so the GIC has released information on the performance of its investments.
According to the reports " .....GIC has significantly enhanced the value of Singapore's savings.......Over 25 years, GIC has grown to an outfit that invests in over 40 countries through nine asset classes, handling over a hundred billion dollars.
And its track record has been good.
Over a period of 25 years to March 2006, the annual rate of return on the foreign reserves managed by GIC averaged 9.5 percent in US dollar terms, and 8.2 percent in Singapore dollar terms.
The average rate of return over global inflation was 5.3 percent per annum."The report makes it look like the returns are good. But really they are not.
I would have done better simply parking my money with the US S&P 500 index.
The Standard and Poor's website writes " From January 1926 through March 2006 the annualized total return for the S&P 500 was 10.46% per year up from the annualized 10.44% rate in December 2005. The dividend component consists of 40.97% of the return, down from the 41.16% value at December 2005."
10.46% vs 9.5%. I think a Primary 5 student will be able to tell you which is better. I wonder why we pay so much to these GIC people to give us returns that underperform against the S&P 500 which is just an index of stocks and not actively managed! We are wasting our money!
And the Chairman gives us further insight into their strategic thinking : "GIC invests the government's reserves abroad in assets which carry higher risks like equities, bonds, real estate.
Therefore these are expected to earn higher returns on average over the long term."
That sounds totally ABSURD to me! From what I understand high risk investments positions are usually taken to maximize returns over the SHORT TERM and not the long term! As it is for all the "good" high risk investment options that GIC took up, they achieved poorer returns compared to the S&P average! I would consider that a massive failure!Even more shocking is the next statement by the Chairman : "The CPF invests members' savings only in absolutely risk-free Singapore government bonds. CPF members are paid market-related interest rates based on the 12-month fixed deposit rates and the savings account interest rates of the major Singapore banks, subject to a floor, he said.
CPF members who are willing to accept higher risks for higher returns have many channels to do so on their own through the CPFIS scheme," he added."
If the GIC is so good at achieving long term higher returns in high risk investment positions, then it makes no sense why CPF should only invest in absolutely risk-free Singapore government bonds!
I am no financial wizard but I am not naive either. It is safe that CPF invests members' savings in very low risk (there is no such thing as risk free) bonds. It is the people's money.
But please don't play with figures to proclaim that GIC is doing well when it is clearly the contrary! We are not fools.