I am frequently asked how I became interested in Singapore and the unique case of Temasek Holdings and the Government of Singapore Investment Corporation (GIC). Despite conspiracy theories in which I work for a hedge fund, the communist government of China, or those crazy American capitalists, the truth is much more boring.
In 2007 and 2008, I worked at a think tank in Santa Monica, California and I became interested in sovereign wealth funds. Headlines on sovereign wealth funds were exploding in the news with all nature of fear mongering about the potential for combining state political power with financial might. Interested in understanding the behavior of sovereign wealth funds, like Temasek and GIC, rather than believing the news driven fear mongering headlines, I set out to assemble data that might would help us assess their investment patterns. I subsequently spent many months pouring through data sources such as corporate filings, Securities and Exchange Commission records, my local Bloomberg terminal, and Thompson Datastream to assemble data that would provide me insight into their behavior.
Published on an academic paper database in June 2008 with the sexy title “A Portfolio Analysis of Sovereign Wealth Funds”, it was covered in a variety of outlets such as the Wall Street Journal among others. Written with much rhetorical flourish, it contained such incendiary claims about Singapore as:
“Examining the public equity holdings of Temasek Holdings and the Government of Singapore Investment Corporation (GIC), both Singaporean sovereign wealth funds, for whom good records exist, their holdings indicate a conservative portfolio of global equities.”
“…Singaporean SWF’s do not appear to assume risks other sophisticated investors do not also assume.”
“…the Singaporean SWF private equity investment record seems both rational and respectable.”
While I understand that these claims were inflammatory to absolutely no one, given the data in 2008 they were entirely defensible and based on all available evidence at the time. However, as John Maynard Keynes notes, “when the facts change, I change my mind.”
In the spring of 2010, I began writing my book entitled Sovereign Wealth Funds: The New Intersection of Money and Power. It was during this process having studied other sovereign wealth funds that I attempted to reconcile Temasek’s claim of having earned 17% annually since its inception in 1974. Knowing the long term returns of stock markets and other major sovereign wealth funds averaged from 6-9% depending on the riskiness of their portfolio or their respective market, I was curious to find out more about what investment strategy SWF’s used to pull off such spectacular returns. I then began by trying to find their investment strategy and holdings.
I quickly realized that I could not come close to reconciling the 17% annual returns claimed by Temasek with either the broader market or individual holdings. Of all the sovereign wealth funds I reviewed, Singapore and its respective funds were the onlyfunds with serious financial discrepancies. For instance, those funds claim to earn a rate of return consistent with investments they are known to have held but also inflows and outflows could be reconciled such that there did not appear to be large differences.
Singapore and its funds, Temasek and GIC, were the only instance I could find where serious discrepancies existed between a) the rate of return claimed by a sovereign wealth fund and the broader market b) the rate of return claimed by a sovereign wealth fund and individual investment holdings and c) the claimed assets under management, capital inflows, and claimed annualized returns.
After discovering such a large discrepancy in Singapore, I looked hard at other funds and countries and simply could not find a discrepancy of a remotely similar magnitude. And believe me I looked hard at other countries and funds. The differences are well beyond anything that might be considered a rounding error or understandable difference.
I never at any point set out to write extensively about Singapore it is only that its public finances simply cannot be explained or reconciled. Given the inflows from public surpluses and borrowing for the purposes of investment as claimed by the government coupled with the claimed high rates of return, there simply should be a lot more money than is listed on the government balance sheets. The government may be able to evade questions and concerns about their finances from someone like myself but they simply cannot avoid the laws of mathematics.
It was simple academic curiosity of continuing to ask questions that drew me to study Singapore, Temasek, and GIC. I am not connected to Singapore in anyway and have refused to be drawn into Singaporean politics or endorse politicians. I will however continue to ask questions and try to find the truth of what has happened to the money lent by CPF account holders and the years of surpluses paid out in taxes by ordinary citizens.