Silver lining in cloud over Singapore

While Singapore is hurting in the global downturn, a top Singapore fund manger sees a silver lining in the cloud.

Now is the time for to sovereign wealth funds to snap up bargains and become even bigger players, says Government of Singapore Investment Corporation (GIC) deputy chairman and executive director Tony Tan. 

He told the World Economic Forum in Davos: “With many key debt and equity real estate markets pushed to extreme under-valuations, institutional investors like pension funds and sovereign wealth funds will play an important role in the stabilization and eventual recovery of asset markets,” reports Bloomberg. “Real money investors, particularly unleveraged global institutional investors, would become relatively more important players”.

Once one cuts through the jargon, he was reiterating what the Economist reported more than a week ago:

Singapore has said that its two investment vehicles are now poised to “take advantage” of opportunities thrown up by the slump.

But others have different ideas.

The United Arab Emirates should spend part of its sovereign wealth fund to revive the economy, said a royal adviser.

Federal National Council Speaker Abdul Aziz al-Ghurair said: "We have built up huge reserves of $300-500 billion. We can put it into some projects… otherwise when do we spend it? It's for a rainy day," reports Reuters.

Abu Dhabi Investment Authority may have lost $125 billion last year,  Bloomberg reported last month, quoting a report by economists at the Council on Foreign Relations.

Abu Dhabi’s fund was managing an estimated $328 billion at the end of 2008 compared with $453 billion a year earlier, said the report, which examined the four largest Gulf Arab sovereign funds.

The report says:

The swing in fortunes of the smaller Gulf states is more extreme: the foreign assets of the governments of Kuwait, Qatar, and the United Arab Emirates – in the authors’ judgment— fell from close to $1 trillion at the end of 2007 to close to $700 billion at the end of 2008. These estimates are in line with losses at other institutions. Norway’s Government Pension Fund Global is down 15 percent this year despite record inflows. Harvard’s endowment fell at least 20 percent in the second half of 2008.

One wonders how the two Singapore funds performed.

GIC, which manages Singapore’s foreign reserves, will be able to continue generating reasonable returns, Dr Tan told the Straits Times.

It does not have to answer to ordinary shareholders.

The state-owned company has a long-term investment horizon of  “20 years or more”, which helps it ride out market fluctuations, he said.

As for what else he said in Davos, here is a report from the World Economic Forum website.

GIC is the world’s third biggest sovereign wealth fund and manages an estimated $330 billion, according to the Sovereign Wealth Fund Institute. It says GIC’s major direct foreign investments include Gravity (South Korea), Beijing Capital Land (China), Thakral Holdings (Australia), AEI (USA), UBS (Switzerland), Brixton (UK), Great Portland Estates (UK) and Pepsi-Cola Products Philippines.

But other sovereign wealth funds have become more risk-averse, according to the Economist:

Among the most cautious is China, which has been selling American agency bonds since their main issuers, Fannie Mae and Freddie Mac, the two mortgage giants, flirted with default in mid-2008. Instead it is buying Treasuries. The Saudi Arabian Monetary Authority, with $500 billion-odd of assets, is being run even more conservatively than usual: between June and November the share of its funds held in gold, cash and deposits rose from 22% to 31%. The similarly sized Abu Dhabi Investment Authority has been cutting its equity allocation to the lower end of its target band of 40-55% of assets, and giving more to index-trackers and less to expensive active managers.