Thursday, 6 Aug 2020

President Halimah briefed on projected investment returns from GIC, MAS, Temasek

SINGAPORE – President Halimah Yacob has been briefed by Deputy Prime Minister Heng Swee Keat and officials from the Ministry of Finance (MOF) on the Government’s proposed expected long-term real returns on its assets.

These projections would be used to determine how much it will be able to tap into the nation’s past reserves for the next Budget.

In a Facebook post on Sunday (Dec 8), President Halimah said the Council of Presidential Advisors (CPA) was also at the meeting last week.

Representatives from GIC, the Monetary Authority of Singapore (MAS) and Temasek were also present to share their views on the long-term market outlook, she said.

“This process is an important one within our annual Budget cycle,” said Madam Halimah.

“We examine the assumptions used in the projections carefully, as the expected returns will be used to derive the amount the Government can spend from our past reserves under the Net Investment Returns framework.”

Under the framework, the Government is allowed to take into the Budget up to 50 per cent of the expected long-term real returns on net assets invested by GIC, MAS and Temasek, after deducting liabilities such as Government bonds.

This ensures that any tapping into the reserves will be done in a sustainable manner, to provide future Governments with a steady stream of returns to support the Budget, said the MOF on its website.

Among the three investment entities, the Government’s assets are mainly managed by GIC, a professional fund management organisation that MOF describes as a “fairly conservative investor” in mainly public markets and, to a small extent, alternative investments such as private equity and real estate.

Meanwhile, the Government also places deposits with MAS, Singapore’s central bank, which holds its own assets as a statutory board on its balance sheet. A significant proportion of the MAS’ portfolio is invested in liquid financial market instruments.

Lastly, the Government is also the sole equity shareholder of Temasek Holdings, an investment company managed on commercial principles to create and deliver sustainable long-term value.

Before the start of each financial year, the expected long-term real rates of return are proposed by the boards of GIC, MAS and Temasek, based on detailed study and assessments by investment professionals in the three agencies. A range of external expert views are also sought.

The Ministry of Finance then thoroughly reviews the methodologies used to propose the rates, and proposes the expected long-term real rates of return to be applied to the net assets invested by the three agencies.

The President will then consult with the CPA before she decides whether to agree with the Government’s proposal.

In the event that the Government and the President do not agree to any of the expected rates of return, historical average rates of return from the past 20 years will be used to determine how much the Government can spend.

“The 20-year historical rate of return provides a neutral and pragmatic basis for resolving any dispute between the President and the Government, and avoids paralysing the government of the day,” said the MOF on its website on how the process is carried out.

On Sunday, President Halimah said in her Facebook post that she and the CPA had “good discussions” with MOF as well as GIC, MAS and Temasek on macroeconomic issues and the basis on which the expected returns were derived.

“I will review the Government’s proposal in consultation with the CPA,” she added.

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