You have to think long-term: Ng Kok Song

In an interview with The Sunday Times last week, newly retired Government of Singapore Investment Corporation (GIC) group chief investment officer Ng Kok Song spoke of the challenges of managing Singapore's foreign reserves. Mr Ng, who now advises GIC in the role of chair of global investments, also discussed the issue of accountability in terms of how the reserves are managed. Here is an edited transcript of the interview

The Straits Times, 2 Mar 2013

You have been at GIC for 26 years and in reserves management for 42 years. How do you feel now that you have retired?

I first started out in 1970 at the Ministry of Finance in a small department called the department of overseas investments. When I first started our country had very little reserves: a few hundred million dollars.

We now have a situation where in a financial year, the Net Investment Returns Contributions are a significant part of the annual government budget. This contribution enables the Government to tap the returns for the benefit of Singaporeans.

Does the weight of managing the reserves put pressure or stress on you and your GIC colleagues? How did you feel during difficult times or crises?

The GIC would be able to handle this (pressure) better if there is a better understanding between the government and the public as to how we could collectively enable the GIC to manage this money in the best interests of Singapore.

We know that our reserves will earn better returns if we are able to take a long-term view.

Singaporeans (need) to agree that the GIC should be evaluated on a long-term basis and that is why in our annual report we put the emphasis on long-term returns and we define it as a 20-year rolling real rate of return.

Because once you have this long-term investment horizon, then from time to time, the markets are going to present you with opportunities to make good long- term investments at very attractive prices.

But those are situations where the markets are very, very stressed. In the short term the market could still go down and if then you say, "look you shouldn't have invested, why didn't you wait", you are focusing on short- term results.

For example, if you look at the 2008-09 global financial crisis, we had to take a very difficult decision in the middle of 2007 to de-risk the portfolio at a time when the markets were just continuing to move upwards.

But we felt that the markets at that time were priced to what we call to perfection and that it was risky for us to maintain the amount of equity risk we had in our portfolio. But when we reduced our position, the markets continued to go up. From the middle of 2007, it continued to move up until October 2007.

And it was only in 2008, when we had Bear Stearns and bankruptcies problems and subsequently Lehman Brothers, that markets came down. So if you were concerned with short-term results, you wouldn't have the courage to do what you feel is necessary for the long-term value.

A very important point is that we want GIC to be able to invest for the long term and therefore it is counterproductive to the long- term interest of our reserves that the portfolio managers because of public pressure are concerned about short-term results.


This is a challenge. How do you think it can be managed better?

The important thing is to recognise that these are reserves that the Government can afford to set aside and can be invested for the long term.

There is a need for a better understanding with the public that the GIC portfolio with its large exposure to the equity market risk will have its ups and downs.

It is quite reasonable for the government to hold the GIC management accountable for performance. And it is quite reasonable for the public to hold the government and the GIC accountable for the performance.

The question is: What should be the metric for evaluating performance?

So I would say the primary metric really should be: Is the GIC, over a long period like 20 years, able to preserve the value of reserves against inflation, and to add something on top of it?

Secondly, you can compare the GIC's portfolio against what we call composite portfolios. In our annual report we introduced the idea of 60/40, 70/30 global composite equity/bond portfolios because these are representative of how a large, global institutional investor invests.

So those are ways in which we can look at GIC's performance against these over a reasonably long period of time.

It makes no sense to compare three months, six months, one year. It's too short. Markets are very choppy, up and down.

In the investment business, what matters is what is your result for the overall portfolio, not for individual investments, and over a long period of time.

With the changing populace, would you say that the Government and GIC's relationship with the public is more challenging?

If you are a Singaporean, it is understandable why you want to know how the reserves are being managed. But we have to make a distinction between what I call complete transparency and accountability.

There are demands out there that the Government be completely transparent about the reserves, about how much reserves there are, about what the last three months' results are, and that the Government publish the portfolio that GIC manages.

Why do you want to disadvantage GIC in the financial markets by giving away information which could be sensitive?

Everyday, our investment professionals are out there competing against the hedge funds, other investors, sovereign wealth funds.

But accountability is perfectly necessary. Otherwise how do you ensure that proper processes and the level of competence in the GIC is up to the mark? That's why I emphasise having the right metric for evaluating. That is accountability.


How will GIC deal with the increasing competition from sovereign wealth funds?

This is something the management of GIC asks ourselves: how do we excel, organise ourselves so that we are able to compete successfully. Firstly, we must have a truly long-term orientation.

The second thing is to ensure we have the talent, a combination of Singaporean talent and non- Singaporeans. We need to ensure that GIC is able to continue to attract and retain talent. The continuity of key personnel helps to retain the institutional memory and also people outside - your partners - they don't want to come to GIC and see a different face every time.

The third point is clarity of objective - clarity of objective free of political meddling and interference in our investment decisions so that the investment professional can do a professional's job.