BACK in the third quarter of 2007, when global financial markets were still buoyant and the investor mood fairly exuberant, the Government of Singapore Investment Corporation (GIC) pulled back: it sold some of its equity holdings. As a result, when the opportunities to invest in UBS and Citigroup arose, it had the cash in hand to do so - some US$16 billion.

Speaking to Singapore reporters in Davos on Saturday, after a few days of discussions on sovereign wealth funds at the World Economic Forum, GIC deputy chairman and executive director Tony Tan said one question that came up during interviews he had with foreign journalists here was - where did GIC get the resources for its recent huge investments?

Explaining how and why GIC had the means, he said: 'We have been very worried about the financial markets for many months. We thought that the level of leverage in the US market was excessive, risk was not being priced correctly, asset prices were going up at a rate which was not sustainable. These worries have been growing over the years.

'And in the second quarter last year, looking at all of these developments, we took a fundamental review of the GIC portfolio. Until then, GIC had been fully invested in the markets - they had served us very well, giving us very good returns, but we felt that under these circumstances, we should move towards a more conservative portfolio and convert part of our equity holdings into cash, which is something we have not done for many years.'

GIC did just that in Q3 2007, 'in order to raise cash, because we were very worried about the outlook for the economies and the financial markets'.

At that point, the markets were still doing well - 'there had been modest falls, but they were still strong', Dr Tan noted. Of course, 'everything fell apart' by Q4. And by then, GIC had raised a 'considerable amount of liquid resources', he said.

'So when the invitation from UBS and Citigroup came to invest in their equity, we had the resources which were available without having to take emergency measures to raise cash. A lot of money, but it's well within the risk limits which we had prescribed for the finance sector.'

As it turned out, GIC's reading of the market direction proved right, Dr Tan said.

'What surprised us was the fact that when the markets actually turned, they did so at such a speed and the contagion effect was so broad that they affected even the best known and well regarded banks like UBS, Citigroup and Morgan Stanley.'

But he reiterated that the recent 'confluence of events' that hit banks in the US and Europe, and which led to GIC's UBS and Citigroup ventures - the US sub-prime crisis, recession fears, credit tightening - were highly unusual circumstances.

'We will not do this on a regular basis,' Dr Tan said. While GIC is 'always on the lookout for opportunities', he hopes 'there won't be another confluence of events which will give us this opportunity again', he added. 'I think if there is another such confluence of events which will make such opportunities available, then the world is in real trouble.'

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