English | 中文版 |  Русский

Breaking News:

Source: www.asiaecon.org |

SINGAPORE'S SOVEREIGN WEALTH FUNDS SUFFER LOSSES


  Just over a year ago, sovereign wealth funds (SWF's) were seen as the saviors of Western banks as they pumped in large amounts of money into struggling banks such as Merrill Lynch, Citigroup and UBS. But SWF's, such as Singapore's Temasek Holdings and the Government of Singapore Investment Corporation, have recently shown that they, too, are not immune to the global financial crisis.


Just over a year ago, sovereign wealth funds (SWF’s) were seen as the saviors of Western banks as they pumped in large amounts of money into struggling banks such as Merrill Lynch, Citigroup and UBS. But SWF’s, such as Singapore’s Temasek Holdings and the Government of Singapore Investment Corporation, have recently shown that they, too, are not immune to the global financial crisis.

The Government of Singapore Investment Corporation (GIC) is a state-owned investment company that primarily invests in the government’s foreign reserves. It is currently the third-largest SWF by the amount of assets, behind the Abu Dhabi Investment Authority and the Government Pension Fund of Norway, with an estimated $330 billion worth of assets. According to the GIC website, it is managing a portfolio worth over $100 billion. The GIC initially had investments in commercial and residential real estate around the world. These include the Seoul Finance Center in South Korea, the ANA Harbour Grant Hotel in Australia, and the InterContinental Hotel Paris in France. But it has recently bought equity stake in several real estate and financial companies. These include an investment in UBS AG worth 11 billion Swiss Francs and a 4% stake in Citigroup Inc. worth US$6.6 billion.

Temasek Holdings is also an investment company owned by the Government of Singapore and, particularly, by the Ministry of Finance, that invests the government’s foreign reserves and the proceeds of the privatization of state-owned firms. It is ranked as the sixth-largest  SWF with an estimated $159.2 billion worth of assets. According to their website, they manage a portfolio worth over $134 billion. Temasek invests in a variety of industries, including financial services, telecommunications and media, transportation and logistics, real estate, infrastructure and energy. It is currently heavily invested in the financial services industry, including a 9% stake in Merrill Lynch & Co. worth $5.8 billion and a 5.2% stake in Barclays worth $4.6 billion.

Recently, GIC and Temasek have received criticism about their investments in Western banks at the onset  of the crisis because they have been rendered vulnerable to the downturn in the banking industry. Together, GIC and Temasek have invested over $24 billion in the recapitalization of UBS, Citigroup and Merrill Lynch in the past fourteen months. These investments were previously defended by arguing that SWF’s, like GIC and Temasek, were rescuing  troubled banks by providing the necessary capital to keep them afloat.

As losses from these Western banks continue to come up, the soundness of these “rescuing” investments has come under fire. Investments made by SWF’s that have since suffered losses are more prone to criticism compared to other private companies particularly because of their connection to the government. One problem that arises in these investments, regardless of if they are profitable or not, is the issue of foreign ownership of domestic companies. This was evident in the controversy of Temasek’s buy-out of Shin Corp. in Thailand, which was previously owned by former Prime Minister Thaksin Shinawatra. Another problem involves the fact that, when these investments suffer losses, they are not only losing money, but they are also losing the public’s money. In the case of GIC and Temasek, their losses mean losses to Singapore’s foreign reserves and other important assets.

It is evident that the GIC and Temasek must now look at future investments to see where they can recover their losses. In addition, they must find a balance between acting as an extension of the Singapore government and as a market-driven investment company.

Source: www.AsiaEcon.org

Please send comments and constructive suggestions to feedback@AsiaEcon.org

 

Source: www.asiaecon.org |


More Special Articles - Asia Business & Economy Articles