Singapore GIC: financial turmoil may not be over

The Associated Press

A Singapore sovereign wealth fund that bought large stakes in banks UBS AG and Citigroup Inc. warned Tuesday that the worst of the U.S. financial crisis may not be over even if Washington implements a US$700 billion bailout plan.

The Government of Singapore Investment Corporation, or GIC, said the current turmoil in the U.S. banking system will likely undermine the future earnings of the fund, which manages more than US$100 billion.

“The proposal put forth by the U.S. Treasury should stabilize the markets to some extent,” said GIC Deputy Chairman and Executive Director Tony Tan at a news conference. “But we should not assume the worst is over. Financial markets and the economic situation have deteriorated significantly in the last five months.”

GIC also regretted the timing of its investment in the two banks — US$9.75 billion in UBS in December and US$6.9 billion in Citigroup in January — said Chief Investment Officer Ng Kok Song.

We would have liked the timing of the investments to be better,” Ng said. “But these are long-term investments.” (emphasis added)

“We were surprised by the onset and magnitude of the market turmoil starting in July 2007,” Ng said in a statement. “What seemed like a contained problem of delinquencies in U.S. sub-prime mortgages quickly spread to other segments of the credit markets.”

GIC, which began investing Singapore’s reserves in 1981, said its annual profit for the last 20 years averaged 7.8 percent in U.S. dollar terms. Tan refused to say what the fund’s earnings were last year or specify how much it manages.

“Given the present challenging conditions and the problems in the world economy, it is unrealistic to expect that we will achieve such high returns going forward as in the past,” Tan said.

Singapore’s other sovereign wealth fund, Temasek Holdings, said last month that earnings doubled to US$12.8 billion in its fiscal year ending March 31, bringing total assets to US$131 billion.

GIC said it invests 44 percent of its portfolio in public equities, 26 percent in bonds and 10 percent in real estate. It invests 35 percent in Europe, 34 percent in the U.S. and 23 percent in Asia.

Former Prime Minister Lee Kuan Yew is GIC’s chairman and his son, current Prime Minister Lee Hsien Loong, is a deputy chairman.

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