GIC must continue to prepare for challenges ahead even as it celebrates its achievements: PM Lee
SINGAPORE – Sovereign wealth fund GIC must continue to anticipate and prepare for challenges ahead, such as economic uncertainties and climate change, as it celebrates its achievements to date, said Prime Minister Lee Hsien Loong on Tuesday (Nov 16).
In the 40 years since its formation, GIC has become one of the best regarded sovereign wealth funds in the world while staying within the risk limits set by the Ministry of Finance, PM Lee added.
“Since inception, it has generated steady returns on our reserves, with annual returns averaging more than 5 per cent above global inflation and this has significantly grown the international purchasing power of our reserves,” he said.
PM Lee, who is also chairman of GIC, was speaking at the fund’s 40th anniversary dinner at Shangri-La Hotel Singapore.
Also in attendance were GIC chief executive Lim Chow Kiat, Senior Minister and GIC deputy chairman Tharman Shanmugaratnam, and former Singapore president and GIC special adviser Tony Tan Keng Yam.
The Prime Minister outlined future challenges that GIC must navigate – economic uncertainties including the impact of prolonged low interest rates and record fiscal deficits, inflation, as well as climate change.
Geopolitics, too, will play a big role moving forward, he pointed out.
“Already heightened US-China tensions are affecting global supply chains. Countries are rethinking the unfettered free flow of trade and investments, and putting new emphasis on supply chain security and resilience,” PM Lee said.
“This is sensible, but downsides have to be seen too and considered, and if carried to excess, it can easily lead to deep bifurcation of global trade and technology. Beyond that, the tensions and rivalry between the powers could cripple markets and investments, even short of full-scale conflict.”
The virtual summit between United States President Joe Biden and Chinese President Xi Jinping on Tuesday was therefore an encouraging first step towards stabilising US-China relations, PM Lee noted.
He also acknowledged the evolving domestic conditions in Singapore – social and healthcare spending will continue to grow, alongside the pressure on the Government to draw more from its reserves instead of raising taxes to finance higher spending.
He expressed his hope that new generations of Singaporeans will retain the same formula that has worked well for the country and GIC thus far – to treat the reserves as a rainy-day fund and continue to grow the nest egg whenever they can, and thus perpetuate its prosperity and resilience for many years to come.
PM Lee highlighted several factors that have been key to GIC’s success, including its adaptation to the changing financial landscape and how it has remained anchored to its core values of prudence, respect, integrity, merit and excellence.
“But just as important to GIC’s success are the political and fiscal conditions within which GIC operates, the context which enables the organisation to function properly,” he said.
Mr Lee noted how GIC was shielded from political interference from day one – the best people were chosen and proper governance structures were put in place, and the management team was entrusted to make investment decisions objectively and professionally.
“On its part, the political leadership stands by GIC and defends GIC’s ability to make investment decisions independently, so long as it has acted properly and competently, and it stands by GIC even when the ex-post outcomes turn out unfavourably, which will happen from time to time for any serious investor,” he said.
At the same time, the Government’s prudent fiscal stance – its commitment to saving for the future and drawing down on reserves only under exceptional circumstances – enables GIC to take a long-term view of investments, Mr Lee added.
“This has enabled GIC to build long-term partnerships, and take on calculated risks that only long-term investors can accept, and both of these are key strategic advantages.”
In achieving its mission, the sovereign wealth fund has protected, preserved and enhanced the value of Singapore’s reserves, enabling it to build up a valuable nest egg to make up for the other natural resources that the country lacks, PM Lee said.
Its reserves have become a strategic resource that has made all the difference during critical moments such as the global financial crisis and the ongoing Covid-19 pandemic, and have been a bulwark that has seen Singapore through safely.
But even in ordinary times, the reserves have played an important role and provided a steady stream of income to the Government of the day, which allows for additional fiscal space to invest in priority areas such as education, healthcare and infrastructure, he added.
GIC must remain bold and build upon this success, constantly innovating and refreshing itself, develop new approaches to managing investments in a more challenging global environment, while staying true to its purpose and core values, PM Lee said.
“I have every confidence that GIC will rise to the challenge, and continue to deliver on its mission, just as it has done for the last 40 years. This is how it will become the leading global long-term investor that it aspires to be.”
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