2015/2016 Report On The Management Of The Government’s Portfolio For The Year 2015/16 2 Overview WHO WE ARE 2015/16 HIGHLIGHTS GIC is a leading global investment firm with well over US$100 billion in assets under management. Established in 1981 to secure the financial future of Singapore, the firm manages Singapore’s foreign reserves. A disciplined long-term value investor, GIC is uniquely Performance Appointments Outlook positioned for investments across a wide range of asset classes, including real estate, private equity, equities and GIC achieved a 20-year annualised rate of Mr Koh Boon Hwee was appointed member of the GIC Looking forward, we expect a difficult fixed income. GIC employs more than 1,300 people across return of 4.0% above global inflation for the Investment Board with effect from 15 January 2016. investment environment with modest growth offices in Singapore, Beijing, London, Mumbai, New York, financial year ended 31 March 2016. prospects, greater uncertainty and a high San Francisco, São Paulo, Seoul, Shanghai and Tokyo. Seven new senior leadership appointments took degree of volatility in the macro economy and High valuations, together with limited effect from 1 June 2016 – markets. For more information, please visit improvement in the outlook for economic growth and earnings globally, mean lower • Mr Lim Chow Kiat as Deputy Group President, The long-term 20-year returns in the coming www.gic.com.sg returns are to be expected over the next while concurrently Group Chief Investment years are likely to be significantly lower decade. Officer. than seen since 1980. Nonetheless, our • Dr Jeffrey Jaensubhakij as Deputy Group investment philosophy, governance framework, Chief Investment Officer, while concurrently organizational capabilities and market President, Public Markets. network, all carefully developed over the last 35 years, leave us well-placed to invest in this The year in numbers • Mr Ang Eng Seng as Chief Investment Officer for new environment. Infrastructure, while continuing concurrently as President (Europe). • Mr Choo Yong Cheen as Chief Investment 4.0% 35 1,300+ Officer for Private Equity. Annualized rolling Years since Total number • Mr Lee Kok Sun as Chief Investment Officer for 20-year real rate GIC was of staff Real Estate. of return incorporated in GIC • Ms Liew Tzu Mi as Chief Investment Officer for Fixed Income. • Mr Bryan Yeo as Chief Investment Officer for Public Equities. Report On The Management Of The Government’s Portfolio For The Year 2015/16 3 Overview THE GIC PRIMER Our responsibility is to preserve and enhance Singapore’s foreign reserves. People and talent are central to what we can do. We believe that the P R I M E results we seek are best achieved through a culture founded on our five PRIME values of Prudence, PRUDENCE RESPECT INTEGRITY MERIT EXCELLENCE Respect, Integrity, Merit and Excellence. We exercise prudence and sound All of us are united in a common Everything we do is founded on We recruit and develop our people We are relentless in our pursuit judgement and take a considered endeavour, regardless of who we integrity. We expect the highest solely on merit. We draw our talent of excellence. In all that we do, approach to managing risks as are, where we work or what we do. standards of honesty from from around the world and provide we strive to be the best that we we seek to deliver sustainable, We respect people as individuals, everyone in GIC, both in our work challenging and meaningful can be. This demands that we superior investment returns, care for their well-being, and and in our personal lives. This work. We grant recognition and plan and anticipate well, so that always conscious of our overriding welcome diversity in capability and includes abiding by the laws of reward based on performance and we will always be in time for the fiduciary responsibility. background. We do not tolerate the countries we invest in, and conduct consistent with our PRIME future, fully able to take up the behaviour that works against the observing our code of ethics in values. We develop our people to challenges and opportunities that As an institution and as interest of our clients or letter and in spirit. achieve their potential so that we come, pursuing improvements individuals, we conduct of GIC. may also perform to our potential. where they may be found, ourselves with good sense and We must never jeopardise the and economies where these circumspection, even as we take We stress teamwork within and trust others have in us and in our We select business partners may be gained. the best advantage of our large across departments, and with our reputation for professionalism. based on their capability. asset base, global presence, clients and business partners. We believe in long-term We expect everyone to do his best multi-asset approach and We expect everyone to be free, relationships built upon high in every situation. We harness the long-term orientation. candid and constructive in their levels of performance and creativity and imagination of our comments and suggestions, and quality of service. people and our business partners always seek to help our colleagues for sustainable, superior results. and GIC do better. Report On The Management Of The Government’s Portfolio For The Year 2015/16 4 Overview THE GIC WAY The GIC Way is a set of principles that defines the CLIENTS FIRST • Pursue intrinsic value and maintain price discipline way we think and act. It sharpens our focus on our • When our clients do well, we do well • Practise long-term investing client, our commitment to people and our future. The PRIME Values act as our compass – having • Never compromise our PRIME values and reputation; not even for • Pick our spots: be focused and leverage our strengths better returns a good compass enables us to get back to our • Pay attention to risk control fundamental purpose and beliefs, especially when • Always follow GIC’s investment principles (5Ps): we are faced with situations we have not come • Prepare for the future across before. PEOPLE – THE KEY • Embolden innovation and encourage learning • Do what’s right, not what’s easy • Reward what matters: contribution; not pedigree, age, gender or nationality • Help GIC make the best decisions. Speak up if you have a different view • Excel in what you do; make a difference • Attract exceptional people and develop them to their full potential • Empower decision-making at every level • Work seamlessly across boundaries and hierarchy — OneGIC FUTURE NOW • Tomorrow is determined today • Build leadership and resources for the future • Insist on nimble and responsive structures and processes Report On The Management Of The Government’s Portfolio For The Year 2015/16 5 Overview CONTENTS 6 9 16 27 31 43 OVERVIEW FROM INVESTMENT REPORT MANAGING FEATURE ARTICLE GOVERNANCE OUR PEOPLE GROUP PRESIDENT 10 Long-Term Investment Performance THE PORTFOLIO 27 Preparing For A Low-Yield Environment 32 Source and Purpose of Funds 44 Our Global Team & GROUP CHIEF 11 Understanding the 20-year Rolling Returns 17 How We Build the Portfolio 28 High Returns From the Mid-80s Were an 32 The President of Singapore 44 Recruiting Talent Exceptional Phase in Investment Markets 12 Long-Term Investment Approach for Long-Term 18 Reference Portfolio: Establishing the client’s 32 The Government 45 Developing Our People INVESTMENT OFFICER Performance 29 Low Expected Returns Over Risk Limits; The Policy Portfolio: Key 33 The Auditor-General of Singapore 45 Leadership Changes The Next 10 to 20 Years 13 The GIC Portfolio Investment Driver; Disciplined Rebalancing 33 The GIC Board 45 Our Alumni Network 30 How GIC Invests in a Low-Yield, 14 Intermediate and Long-Term Investment 19 The Active Portfolio: Skill-based Strategies High-Uncertainty Environment 33 Board Committees 45 Social Programmes Performance 20 Governance of the Investment Framework 30 Conclusion 33 International Advisory Board 15 Expectations for Coming Years 21 Investment Philosophy; Long-Term 34 GIC Management and Group Committees Value Investing; Case Study-Focusing Capital on the Long Term (FCLT) 36 GIC Board and Board Committees 22 Investment Groups in Public and Private 37 Organizational Structure Markets; External Managers 38 Executive Management & Corporate Profiles 23 Managing Risks; Risk Management Objectives; Risk Governance Report On The Management Of The Government’s Portfolio For The Year 2015/16 6 Overview OVERVIEW FROM GROUP PRESIDENT & GROUP CHIEF INVESTMENT OFFICER We are 35 this year. Still young. But in the Singapore context the anniversary is significant, particularly as it comes so soon after celebrating 50 years as a nation – a landmark that has sparked a major retrospection on what has driven our country’s extraordinary rise. Since 1981, GIC has played an integral part in the success of Singapore through the management of the nation’s foreign reserves. Report On The Management Of The Government’s Portfolio For The Year 2015/16 7 Overview Further, the investment returns of GIC, together with that of the Monetary Our globally diversified portfolio is positioned to withstand short-term Authority of Singapore and Temasek Holdings, have contributed to the market volatility, yet still reap strong returns over the long term. Singapore Government’s Budget through the framework set out in the Our long-term orientation also means that the GIC Portfolio has to be Singapore Constitution. significantly different from a portfolio of global equities and global fixed income market indices. This implies that our investment performance Through the continual review of how we organize ourselves, respond to cannot be expected to surpass the global market indices every year or changes in the investment environment and develop our capabilities, even every 5 or 10 years. What is critical is that the GIC Portfolio will we aim to fulfill our mandate to preserve and enhance the reserves that produce positive real returns and surpass the global indices over the benefit the present and future generations of Singaporeans.