SINGAPORE, Aug 1 (Reuters) - The famously secretive Government of Singapore Investment Corp. (GIC) is opening its doors to central bankers who want to improve returns on their foreign exchange hoards.
Officials from China, Japan and South Korea, which have hundreds of billions of dollars in surpluses, have turned for advice to the GIC, which invests more than US$100 billion of Singapore's foreign reserves abroad.
"Historically, governments have been shy in admitting that they dabble in markets," said Arjuna Mahendran, chief investment strategist at Credit Suisse.
"Singapore is studied because it has been consistent in actively managing its reserves for higher returns instead of investing in relatively safe but low-yielding assets such as gold and U.S. dollar bonds," he added.
Officials from China, which plans a $200 billion investment fund, have visited GIC's low-key offices in downtown Singapore.
Japan, which is mulling a similar fund, sent its financial services minister in July, while South Korea's foreign ministry used the GIC as its model for the Korean Investment Corp. (KIC).
The dilemma for the funds is how to invest the money without causing mayhem in the markets and a nationalistic backlash.
"GIC started on a small scale. China is starting huge. How do you deploy that money to achieve high returns without affecting the market?" said Jan Lambregts, head of Asia research at Rabobank.
It's a fair point: sovereign investors, ranging from the Abu Dhabi Investment Authority to Norway's Government Pension Fund, have a combined $2.5 trillion in assets, and could have as much as $12 trillion by 2015, says Morgan Stanley.
GIC, by contrast, started out with less than $6.6 billion.
INCONSPICUOUS
With so much money at their disposal, the sovereign funds sometimes face political opposition, as GIC's sister agency, Temasek Holdings , found in Thailand and Indonesia.
The GIC uses external institutional investors to manage about a quarter of its funds, a move that has helped to develop Singapore's financial services industry while pre-empting any nationalist backlash abroad.
"It's difficult to disburse money. Done too overtly, it becomes politically charged," said Tim Condon, Asia head of research at ING.
The firm -- which insiders say has close ties with investment banks such as Morgan Stanley and Goldman Sachs -- is one of the 10 biggest property investors in the world. Its portfolio includes landmark buildings like Merrill Lynch's London office and Seoul's Star Tower, which together cost about $2 billion.
Its other holdings range from Indian financial firms such as ICICI Bank to Budapest Airport.
"GIC is not interested in taking active stakes in companies or being a substantial shareholder," said one former employee, adding that in some cases it uses special purpose companies to be less conspicuous.
Managers are regularly briefed on stocks to avoid sparking a general offer, former insiders say.
A BENCHMARK
Set up in 1981, the GIC invests reserves abroad in a range of assets and markets, and now employs about 900 people worldwide.
Former GIC employees said the agency reviews allocations regularly, with the public markets division accounting for the lion's share, followed by property. The private equity or "special investments" subsidiary, which has the riskiest assets, traditionally has the smallest portion.
GIC published details of its performance for the first time last July, when its chairman, senior Singapore statesman Lee Kuan Yew, said the fund had reaped a 9.5 percent average return in U.S. dollar terms over 25 years.
Fund managers say it is hard to benchmark the GIC's performance, given the lack of information about its portfolio.
An International Monetary Fund report in May 2006 urged GIC -- which has several current and former ministers on its board, including Prime Minister Lee Hsien Loong -- to be more transparent to "strengthen further public confidence".
Singapore says it is unable to disclose more for strategic reasons, according to the IMF report.
Even without hard numbers, GIC is seen as the model.
"We benchmarked GIC when we prepared for KIC's launch," a spokesman for the KIC, which manages $20 billion for the South Korean finance ministry, told Reuters in Seoul.
($1=1.511 Singapore Dollar)
Fact box on Government of Singapore Investment Corporation
SINGAPORE, Aug 1 (Reuters) - The Government of Singapore Investment Corp. (GIC) manages the bulk of the country's foreign currency reserves, investing more than US$100 billion abroad in what it calls "longer-term and high-yielding assets".
Lee Kuan Yew, Singapore's first prime minister, is the chairman of GIC's board of directors. His son, Prime Minister Lee Hsien Loong, is deputy chairman.
HISTORY
- GIC was set up in 1981 with assets of less than S$10 billion ($6.6 billion).
Last July, it said that about half of its portfolio consisted of equity investments, while bonds accounted for 30 percent. The remainder consisted of private equity, hedge funds, real estate and commodities.
- GIC exists alongside the higher-profile Singapore state investor Temasek Holdings , which is headed by the prime minister's wife, Ho Ching.
Temasek was set up in 1974 and its S$129 billion portfolio includes stakes in Standard Chartered and Singapore Airlines . It has recently taken a stake in Barclays .
- GIC's financial performance was made public for the first time last July when senior statesman Lee Kuan Yew revealed that the fund had earned an average return of 9.5 percent annually over the last 25 years in U.S. dollar terms.
In Singapore dollar terms, GIC's average annual rate of return was 8.2 percent, he said.
SHROUDED IN SECRECY
- GIC, which does not make its financial statements public, has been criticised for its lack of transparency by Singapore opposition politicians and the International Monetary Fund.
It defends its lack of disclosure by saying it is only answerable to Singapore's finance ministry and central bank.
INVESTMENT STRATEGY
- GIC said last July that it would raise its investments in emerging markets as well as private equity and hedge funds because they had proven to be among the best-performing asset classes.
- The agency, which handles three quarters of its portfolio internally and outsources the rest to external fund managers, said it had invested in about 50 hedge funds.
SIGNIFICANT INVESTMENTS
- GIC bought Merrill Lynch's flagship office building in London for $952.8 million in June 2007, adding to its portfolio of international commercial property, which also includes Seoul's landmark Star Tower.
- In June, GIC was part of a consortium that bought a majority stake in Budapest Airport, the operator of Hungary's largest airport, for $2.57 billion.
- GIC was part of a Goldman Sachs-led consortium that took control of Associated British Ports Holdings with a $5.15 billion cash offer.
- In May, GIC and Tokyo-listed Sumitomo Corporation
formed a joint venture to invest up to $1.2 billion in malls across Japan.
- GIC has stepped up investment in British retail property, buying large stakes in Gateshead's MetroCentre mall and WestQuay Shopping Centre in Southampton in two deals worth $1.5 billion.
- In April, the fund paid $593 million for a 50 percent stake in Sydney's Westfield Parramatta shopping centre.
- GIC is expanding into Chinese real estate and formed a partnership with Chinese-based home builder Yanlord Land .
- GIC's hotel properties include the Westin Paris, formerly known as InterContinental Hotel Paris, and No. 1 Martin Place in Australia.
