Skip to main content




Economic uncertainties, geopolitics, climate change among challenges for GIC: PM Lee

SINGAPORE: Economic uncertainties, geopolitics and climate change are among the challenges for Singapore’s sovereign wealth fund GIC, which must “remain bold” in order to build upon its past success, Prime Minister Lee Hsien Loong said on Tuesday (Nov 16).

Mr Lee was delivering the keynote address at GIC’s 40th anniversary dinner held at the Shangri-La Singapore. About 250 guests, comprising government officials, past and current GIC board directors, attended the event.

“Even as GIC celebrates its achievements, it must continue to anticipate and prepare for challenges ahead,” said the Prime Minister, who is also chairman of the GIC board.

One such challenge is economic uncertainties, including the impact of prolonged low interest rates and record fiscal deficits globally.

“Everyone hopes that governments and central banks can unwind these actions without destabilising markets but nobody can be sure of this,” Mr Lee said.

At the same time, inflation, which has long been dormant globally, is stirring again. “It may yet prove less transient than the current conventional wisdom holds,” he added.

But Mr Lee noted that the biggest uncertainties are not necessarily economic-related.

With GIC being invested in assets and markets all over the world, the value of these investments depends on functioning global financial markets, which in turn require the international system “to hold together in good order and not split apart”.

For this, geopolitics will play a big role.

Heightened tensions between the United States and China are affecting global supply chains. Countries are re-thinking the downside of having free flow of trade and investments, while putting new emphasis on supply chain security and resilience.

“This is sensible ... but carried to excess, it can easily lead to deep bifurcation of global trade and technology,” he said.

Tensions and rivalry between the powers, even short of full-on conflict, could also cripple markets and investments, noted Mr Lee, adding that the virtual summit between US President Joe Biden and Chinese President Xi Jinping held earlier on Tuesday was "an encouraging first step" towards stabilising US-China relations.

GIC’s portfolio is also exposed to other external challenges, such as climate change.

“In the medium term, the shift towards a greener and lower-carbon economy will affect our investment strategy,” said Mr Lee, noting that GIC will seek out new investment opportunities in green technologies that are needed in this transition to a more sustainable world.

But if efforts by countries to decarbonise collectively prove inadequate in the longer term, environmental deterioration and climate-related disasters will have “severe consequences” for the global economy and affect GIC’s portfolio.

This is why, he added, GIC has developed its own sustainability framework and “is watching the climate issue closely”.

At the same time, domestic conditions in Singapore are evolving.

For one, spending on social and healthcare will continue to grow, as will the pressure on the Government to draw more from the country’s reserves instead of raising taxes to finance the higher spending, Mr Lee said.

"Every new generation of Singaporeans will ask themselves afresh the same question: 'Do we maintain the same attitude as our forefathers?'" he asked.

This includes treating the reserves as a rainy-day fund, tapping on it prudently for present needs, while continuing to grow the reserves with future generations in mind.

“I hope that they will reach the same conclusion as Singaporeans have done so far,” said the Prime Minister.

“And that is to retain the formula that has worked so well for GIC and for Singapore ... and thus perpetuate our prosperity and resilience for many years to come.”


In his speech, Mr Lee recounted how GIC was formed in 1981.

Dr Goh Keng Swee, then-Deputy Prime Minister and chairman of the Monetary Authority of Singapore, saw the critical need for Singapore to invest its reserves for the long term and proposed creating a dedicated entity to oversee this.

Mr Lee said this was “a bold idea, ahead of its time” with no similar models to emulate.

Then-Prime Minister Lee Kuan Yew became GIC’s first chairman and together with his colleagues, set the strategic direction for GIC.

“GIC would operate with a commercial mandate, free from political interference. It would embrace meritocracy and uphold high standards of integrity. It was given a focused mission to generate long-term real returns on Singapore’s reserves,” he said.

Since then, GIC has come a long way to become one of the best regarded sovereign wealth funds in the world, with 10 offices in different cities and investments across 40 countries and multiple asset classes.

Most importantly, it has “lived up to its mission” to generate steady returns on Singapore’s reserves, with annual returns averaging more than 5 per cent above global inflation.

Mr Lee said this has “significantly grown the international purchasing power” of the country’s reserves, and GIC has done so “while staying well within the risk limits” set by the Ministry of Finance.

“In achieving its mission, GIC has protected, preserved, and enhanced the value of Singapore’s reserves. This has enabled us to build up a valuable nest egg – to make up for the oil, the gems, the timber and all the other natural resources that we don’t have.
“Our reserves have become a strategic resource for Singapore and during critical moments, this has made all the difference,” he added.

These critical moments include the 1997 Asian financial crisis, the global financial crisis in the late-2000s and now, the ongoing COVID-19 pandemic that has wreaked havoc on economies and people’s lives around the world.

For the COVID-19 pandemic, many countries, including Singapore, had to implement massive fiscal packages to preserve livelihoods and jobs, said Mr Lee. But while other countries had to borrow huge amounts to finance their interventions, Singapore was able to rely on its reserves, he added.

“We didn’t need modern monetary theory,” Mr Lee said, noting that Singapore budgeted more than S$50 billion for schemes to support businesses and workers through the crisis, while pressing on with longer-term programmes.

The reserves serve as “a bulwark that has seen Singapore through safely” in these three critical moments. Even in ordinary years, they play an important role as they provide a steady stream of income to the Government of the day.

Under the Constitution, up to 50 per cent of investment returns from the reserves flow back to the Government’s annual budget through the Net Investment Returns Contribution. This, Mr Lee said, equates to about 20 per cent of the Government’s annual revenue which is “much more” than the revenue collected from the Goods and Services Tax (GST) or corporate income tax.

This has provided the Government with extra fiscal space to invest in priority areas like education, healthcare, and infrastructure, he said, adding that this is why GIC’s mission is “such a vital one”.

“If Singapore did not have substantial, well-managed reserves, our situation – whether in crisis or peace time – would be much more difficult,” Mr Lee added.


Mr Lee also laid out the four reasons behind GIC’s success.

First, it set out to build “a first-class institution" based on meritocratic principles and with a clear mission to manage the country’s reserves professionally.

Second, GIC has adapted to the changing financial landscape by expanding its geographical coverage – from a largely US and British-centric portfolio to include investments in Western Europe and emerging Asia – as new opportunities arose.

At the same time, it developed new investment capabilities, including in private markets and green assets, while investing more in areas such as enterprise technology and innovative healthcare in response to "secular mega-trends" like technological disruption.

Third, GIC has approached its investment mandates “systematically with ample thought and caution”.

Fourth, the sovereign wealth fund is anchored in its core values of prudence, respect, integrity, merit and excellence.

Mr Lee said: “GIC is not just a global fund seeking to make returns, but a public institution with a strong sense of public mission and stewardship. These are factors which are intrinsic to GIC.

“But just as important to GIC’s success are the political and fiscal conditions within which GIC operates –the context which enables the organisation to function properly.”

He noted that from day one, the Government made it a point to shield GIC from political interference by choosing the best people and putting proper governance structures in place.

This “clearly separated” the roles of the board and management, and it entrusted the management team to make investment decisions objectively and professionally.

The political leadership also “stands by GIC and defends its ability to make investment decisions independently, so long as it has acted properly and competently”, said the Prime Minister. 

"And it stands by GIC even when the ex-post outcome turns out unfavourably, which will happen from time to time for any serious investor,” Mr Lee added.

At the same time, the Government’s prudent fiscal stance enables GIC to take a long-term view of investments. 

“This has enabled GIC to build long-term partnerships and take on calculated risks that only long-term investors can accept. And both of these are key strategic advantages,” said the Prime Minister.

Mr Lee noted that the country’s founding leaders were bold in establishing GIC.

“Through our forebears’ frugality and foresight, and GIC’s competence and commitment, we created a strategic resource for Singapore. GIC must remain bold and build upon this success," he said.

“It must constantly innovate and refresh itself – its talent, its organisation, its expertise. It must develop new approaches to managing investments in a more challenging global environment, while staying true to its purpose and core values," he added.

“I have every confidence that GIC will rise to the challenge and continue to deliver on its mission, just as it has done for the last 40 years.”

Source: CNA/sk


Also worth reading