GIC & The Management of

Singapore's Reserves

Outline

1. About GIC

– Role and Mission

– History

– Governance Framework and Organizational Structure

– GIC’s role in Government Reserves Management

2. Characteristics of the GIC Portfolio – Investment Framework

– Asset Mix

– Geographical Distribution

– Investing Principles

3. Q&A

Outline

About GIC

Our client requires us to achieve good long-term returns to preserve and enhance the international purchasing powerof the reserves

GIC’s Investment Goal

Organization

Assets

Staff

Offices

GIC

> US$100 billion

>1,200

Singapore | LondonNew York | San Francisco Tokyo | Beijing | Shanghai Seoul | Mumbai | Sao Paulo (2014)

TODAY

GIC

Few billion

<50

SingaporeLondonNew YorkSan Francisco

• It was decided that Singapore’s reserves shouldbe invested in longer-term, higher-yieldingassets.

• GIC set up to manage foreign reserves.Mr Lee Kuan Yew, then PM, chaired GIC’sBoard. He stepped down in 2011 and wasSenior Advisor o the Board. PM Lee HsienLoong is now Chairman of GIC Board.

1981

MOF

Few hundred million

<20

Singapore

1960s

Reservemanagementinitiated at MOFin late 1960s

MAS

Few billion

<50

SingaporeLondon

1971 - 1980

• Monetary Authorityof Singapore (MAS)set up as central bank.

• Reserve managementtransferred to MASfrom MOF

Our History

Asset classes

Nominal Bonds

Inflation-Linked Bonds

Developed Market Equities

Emerging Asian Equities

Emerging Non-Asian Equities

Private Equity

Real Estate

Cash

Natural Resources

Marketable Alternatives

Infrastructure

Real Return Programme

Special Situations

2000’s - 2012

Bonds

Equities

Properties

Cash

1981-2000’s

Mainly governmentbonds and bank deposits

1960s

Mainly governmentbonds and bank deposits

1971 - 1980

Nominal Bonds & Cash

Inflation-Linked Bonds

Developed Market Equities

Emerging Market Equities

Real Estate

Private Equity

2013

Our History

GIC’s Role in Reserves Management

Why Does Singapore Need Reserves?

1. AN INSURANCE MOTIVE: Provide a key defence for Singapore in times of crisis

(natural calamities, war or economic crisis). Our reserves are a strategic asset should a major

crisis occur, allowing us to mount a decisive and effective response.

2. A “CONSUMPTION SMOOTHING” MOTIVE: Investment of our reserves provides a

valuable stream of income for the Government Budget, which can be spent or invested for

the benefit of current as well as future generations.

The Funds We Manage Source of funds: Proceeds from issuance of government securities,

government surpluses & proceeds from the Government’s land

sales

Ownership of assets under management remains with the

Government; we do not manage third-party monies

The funds may not be invested in Singapore & UNSC

sanctioned countries.

Funds are invested in over 40 countries globally

Use of Funds A safeguard against unforeseen circumstances

A regular contributor to the annual government budget

1

2

3

4

1

2

2008

2009

2010

2011

2012

2013

Guaranteeing of bank deposits with S$150b of

the reserves

Resilience Package & Start of

Net Investment Returns Contribution

NIRC: S$7.83b

NIRC: S$7.91b

NIRC: S$7.65b

NIRC: S$7.94b

NIRC: S$8.55b

2014

2015

NIRC: S$8.94b

GIC’s Role in Reserves Management

- Short-term liquidity

- Currency intervention

- Steady, sustainable income

for government spending via

NIRC

- Contingency spending

- Contingency spending

- Income for government via

NIRC

- Holding of strategic

companies

Conservative Fairly conservative Less conservative

Liquid Overall portfolio fairly liquid,

diversified, with illiquid asset

classes

Illiquid and fairly concentrated

OFR figure is public info

(US$248b as at 31 March 2015)

AUM not disclosed AUM is public info

(S$266b as at 31 March 2015)

Purpose of Funds

Risk Profile

Liquidity Profile

Transparency

The Government decides how capital should be allocated among the three reserves

management entities, taking into account their different investment orientations.

GIC and Temasek are fundamentally different in the nature of their business

operations and investment objectives, with separate and independent

decision-making processes and authority

GIC vis-à-vis Temasek

Fund manager for Singapore’s foreign reserves

Assets under management are owned by the Government

Institutional investor

Owns the assets it manages

Characteristics of the GIC Portfolio

12

11%-15% 4%-6%

25%-30%

Right mix of beta and alpha

Investment return is made up of 3 distinct components:

Our objective is to construct a portfolio with the best mix to meet themandate:

• Beta: As embodied in the Policy Portfolio

• Alpha: As implemented through the Active Portfolio

Cash

Beta (asset classes)

Alpha (active management)

1

2

3

Investment Framework

+ =

POLICY PORTFOLIO

(Beta)

ACTIVE PORTFOLIO

(Alpha)

GIC PORTFOLIO

Allocation among six core asset

classes

Key driver of returns over the

long term

Robust across variety of economic

environments

Approved by the GIC Board

Comprises overlay of active,

skill-based strategies

Adopted by GIC management

Overseen by GIC Investment Board

Represents actual exposures of the

GIC portfolio

Within risk limits set by

Government

GIC’s Investment Framework

20y

10y

5y

Tim

e h

ori

zon

3y

Policy Portfolio• Systematic risk premia• Robustness – caters to

multiple scenarios

Active Strategies• Idiosyncratic return streams• Undertaken by many internal

and external teams

Medium-Term Strategy (MTS) and Management Overlay

• Asset allocation changes to navigate extreme valuations and avoid permanent

impairment

Our framework is structured to

achieve clarity on:• The drivers of return

• Horizon over which they pay off

• Best governance around decisions

Owned by Board, recommended by

Management

Overseen by Board Committee; implemented by Management

MTS approved by Board.

Overlays implemented by Management, within Risk limits

approved by Board

GIC’s Policy Asset ClassesHarvesting Long-Term Risk Premiums

Asset class Role

DM Equities Capture growth risk factor through listed companies

EM Equities Capture the premium associated with economies transitioning from

emerging to developed: faster growth, investor-friendly reforms, risk

premium compression

Real Estate Contribute to portfolio diversification, capture real returns and provide

some inflation protection

Private Equity Capture returns from manager skill, illiquidity premium and exposure to

growth risk factor via unlisted companies

Inflation-Linked

Bonds

Earn long-term real return, and provide protection from unexpected

inflation risk

Nominal Bonds Provide protection from growth risk, liquidity and diversification

11%-15%

4%-6%

Portfolio Policy Asset Mix

11%-15%

11%-15%

4%-6%

25%-30%

Portfolio Policy Asset Mix

Developed Market Equities

Emerging Market Equities

Nominal Bonds & Cash

Inflation-linked Bonds

Real Estate

Private Equity

Developed Market Equities

Emerging Market Equities

Nominal Bonds & Cash

Inflation-linked Bonds

Real Estate

Private Equity

20% - 30%

15%-20%

4%-6%

25%-30%

9%-13%

11%-15%

Portfolio Geographic Distribution

43%

25%

30%

AMERICAS

EUROPE

ASIA

2%AUSTRALASIA

Temasek’s Portfolio by Geography

• Public Equities:

• Listed and Pre-IPO

• Relative and Total Return

• Fixed Income:

• Sovereign Bonds

• Corporates (Investment Grade and High Yield and including

Straight Debt, Loans, Convertible Bonds and Private Debt)

• External Fund Managers

Public Markets

• Investment instruments: Flexible across equity, structured /

convertible securities and mezzanine and other quasi-equity

instruments

• Deal types: (i) minority equity private placements and minority

partnerships in buyouts; (ii) pre-IPO funding rounds; (iii)

PIPEs; and (iv) partnerships with corporates

• GIC is a minority investor

Private Equity

Real Estate

Breath of Investment Coverage Thousands of Investments in over 40 Countries

Annualised Rolling 20-Year Real Rate of Return of the

Government's Portfolio

*As of 31 March 2015

20-year

annualised

real return

as at 31

March 2015

= 4.9%

Our ‘5Ps’ of Investing

Pursue intrinsic value & maintain price discipline

Practise long-term investing

Pick our spots: be focused & leverage our strengths

Pay attention to risk control

Prepare for the future

1

2

3

4

5

Our Competitive Edge

• Large size and stable capital – access to many global opportunities

• Ability to invest with a long-term horizon, riding through market volatility

– Reap long-term risk premiums (e.g. illiquidity)

– Enables contrarian stance in the face of short-term sentiment

– Compounding of returns

• Expertise across different asset classes and through the capital structure –

greater synergies

– E.g. leveraging off equity relationship to structure and participate in company’s debt

investments.

• Extensive network – superior information and access

• Strong global reputation makes us a partner/investor of choice

The Current Environment

2009

Historical Average

Current

2007

Low Returns Ahead

Thank You