GIC & Long-Term Investing

Doha, 20 November 2014

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About GIC

• GIC started in 1981 with just a few billion dollars and now manages well over USD100 billion

• GIC is a fund manager

• We have one client – Government of Singapore

• Reserve management has been strategic since Singapore’ inception – GIC was set up to enable professional management of some part of these reserves for higher returns over the longer term

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1. Reap long-term risk premiums (e.g. equity)

2. Reap illiquidity premia (e.g. real estate)

3. Compound returns

4. Take contrarian stance in the face of short-term sentiment

5. Build an investment organization

What Does Long-Term Mean?

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1. Exposure to Risk Premia

1 Year 3 Year 5 Year 10 Year

High 55.2% 23.9% 20.2% 14.2%

Low -46.8% -18.1% -5.3% -2.1%

Average 8.2% 7.1% 7.0% 7.0%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Range of Annualized Developed Market Equity Returns (1988 - 2012)

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• Strategic allocation to private markets – real estate and private equity

• Excess returns from higher risk and illiquidity

• Diversification from alternate risk premia

2. Private Market Investments

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3. Effects of Compounding

0

100

200

300

400

500

600

700

800

0 10 20 30 40

$

No. of Years

Effects of compounding: $100 invested at 5% p.a.

5% per annum (compound interest)

5% per annum (simple interest)

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• Systematically buying more of the asset which has fallen in value, and selling some which has risen in value to keep composition steady over time.4. Can Be

Contrarian

50

100

150

200

250

300

350

400

450

199

4

199

5

199

6

199

7

199

8

199

9

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

$

Growth of a drifting vs. quarterly rebalanced 65:35 portfolio of global equities and bonds

Drifting Mix Rebalanced Quarterly to Fixed Weights

5. Investment Organization

• 40 countries, thousands ofinvestments

• 10 offices, 1300 staff

• Expertise in public andprivate markets

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In Practice

• An option, not obligation to buy and hold

• Ex-ante, not ex-post

• Institutional capabilities: research, processes, incentives

• Personal mental fortitude

• Capitalises on market irrationality – herd behavior, fetish with numbers, greed and fear

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• Strategy works given our size and institutional setting – 20 and 10 year performance on par with broad markets & meeting client needs

• Strategy builds on our strengths – long-term horizon and stable capital

• Strategy enables us to build other advantages – investment organization, strategies, and relationships

Conclusion – Why?

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