TR EMERITUS

Norway 8 Singapore 0 Norway No, that is not a football match score. That is how the writer grades Norway’s transparency in regards to its Sovereign Wealth Fund in comparison to Singapore. This article is about the transparency of the Norway’s Government Pension Fund, not about the link between pension pay out and the investment returns of the GPF. Norway operates a state pension system in which pension payouts are funded out of government budget. The GPF manages government reserves to smooth out the disruptive effect of oil prices and declining oil reserves on government finances and expenditures. Separation of Fund Management and Fund Reporting This is what the GPF states on the issue of transparency: “Transparency is a prerequisite for ensuring widespread confidence in the management of the Government Pension Fund. Management performance is reported by Norges Bank* and Folketrygdfondet** on a regular basis. The Ministry accounts for the management of the fund in an annual report to the Storting***, as well as in the National Budget.” *Norwegian central bank **the National Insurance Scheme ***the Norwegian Parliament. From this simple statement, one can already see that while the GPF manages the reserves, the reporting of GPF’s performance is done separately by the central bank and the National Insurance Scheme which manages the pension and health system. This is a clear separation of duties that is fundamental to transparency and compliance in finance and investments. In this aspect, Singapore is completely lacking. The poacher cannot be the gamekeeper. Reporting the Rate of Returns Here is a snapshot of GPF’s rate of return: Key Figures at Dec 31, 2013 Last 1y Last 3y Last 5y Last 10y Since 1998 Gross Annual Return 15.95  8.62 12.03  6.30  5.70 Annual price inflation   1.39  2.07   2.00  2.14  1.89 Annual Management Fee   0.07  0.07   0.09  0.10  0.09 Annual net real return 14.29  6.35   9.74  3.98  3.65 One can drill down to see performance for every single year. The GPF shows its returns net of management fees and adjusted for inflation to provide the real rate of return. In contrast, GIC and Temasek publish only their 5y, 10y and 20y nominal rates of return without taking into account inflation even though both stated that they aimed for a real rate of return target which is undisclosed. Although it is assume those nominal returns includes management fee paid, this is also not disclosed. While the GPF reports in Norwegian Kroner (NOK), GIC reports its returns in US$ which is meaningless to citizens and can only be viewed as obscuring its performance in the currency that matters, S$. In its long run performance, the GPF may seem under-performing Temasek (slightly better than GIC) but it must be noted that until 2009, the GPF’s investment risk is far more conservative and its returns went against the headwind of a very strong NOK. Since 2009, when the GPF adopted a more aggressive strategy, its return beats both GIC and Temasek. This speaks volume of its foresight in capturing opportunities thrown up by the GFC, again in stark contrast to both GIC and Temasek. Reporting of Market Value and Capital Inflow The market value of the GPF is provided in the graph below. Please note Market Value measures changes in total fund value inclusive of retained earnings and inflows of new monies. Not only does the GPF provide year to year market value but it also explains what the factors are contributing to the change in market value. Here’s a snapshot for 2013: Total MV Change Inflow Returns Exchange Rate Costs 1,222 241 692 291 -3 The GPF shows the amount of new monies flowing in and also shows its return split into what the actual return is in foreign currency terms and what part the value of the NOK plays in deriving the total returns. So we can see that its superlative returns of 15.95% in 2013, 30% of which is due to a weak NOK. In contrast, Singaporean citizens cannot even tell what is the market value of GIC which is kept secret let alone what new monies or capital injection was delivered to both GIC and Temasek. Forget trying to determine how much the MAS exchange rate policy has cost to their rate of returns. Conclusion The writer can go on and on but believed the point is made that Norway scored 8 goals against zero on a scale of 0 to 10. Why not 10? Well, the GPF does not disclose individual holdings only by geographical locations. This is understandable as the size of its portfolio (S$1.2t) meant some positions can cause market disruptions due to their size. If the GPF which is larger than MAS, GIC and Temasek combined, can be transparent despite its size, then there is no excuse for the poor disclosure in Singapore. Clearly the political culture of openness and accountability has everything to do with it. Read more: Norway's Government Pension Fund Chris K * Chris K holds a senior position in a global financial centre bigger than Singapore. He writes mostly on economic and financial matters to highlight misconceptions of economic policy in Singapore.  Read More →

Butterfly garden at Changi Airport (13 Jun 2014) - ROY NGERNG YI LING does not look like a dangerous radical. An affable, earnest, rather wonkish 33-year-old, he was until June 10th a “patient co-ordinator” in one of Singapore’s public hospitals. He plausibly describes himself as “naive”. Mr Ngerng, however, is now a celebrity in Singapore, at the centre of a lawsuit that says much about the ways the place has changed in recent years; and the ways it has not. He is now jobless, sacked for engaging in conduct “incompatible with the values and standards” the hospital expects of its employees. This is but one of Mr Ngerng’s travails. He is being sued for defamation by Singapore’s prime minister, Lee Hsien Loong. He might face financial ruin. The alleged “serious libel” was made on Mr Ngerng’s blog on May 15th. Mr Lee’s lawyer argued that an article he posted about the Central Provident Fund (CPF), a compulsory-savings scheme to provide for Singaporeans’ retirement, accused the prime minister of “criminal misappropriation of the monies paid by Singaporeans to the CPF”. Mr Ngerng has removed the offending post and apologised, and offered Mr Lee 5,000 Singapore dollars ($4,000) in damages—an offer his lawyers dismissed as “derisory”. But he has continued writing about the CPF and, on June 7th, spoke at a rally at Singapore’s “Speakers’ Corner” that took for its slogan “Return our CPF!”. Mr Lee and his two predecessors as prime minister, Goh Chok Tong, and Mr Lee’s father, Lee Kuan Yew, have all taken legal action in the past to defend their reputations and that of the government as honest. They have always been successful. Mr Ngerng’s case, however is something of a departure. It is unusual for damages to be demanded for an article published solely online. Singapore’s traditional media are insipidly sycophantic to the government.  But, in a wired society that lives much of its life on social media, the internet has been an arena for much more robust and uninhibited debate. Mr Ngerng’s fate may make it less so. Read more: www.economist.com/blogs/banyan/2014/06/opinion-singapore  Read More →

I support the CPF scheme for the most part. Its principles are essentially sound, although there are many things about how CPF works that are just bewilderingly at odds to me. This, of course is no grounds for me to march off to Hong Lim Park, but it does make me go... Inflation-pegged targets, without inflation-pegged returns It seems rather strange that the Minimum Sum is pegged to inflation, but the CPF interest rate isn't. Here you have a savings goal but the path chosen to get to it is... something else. Why? I'm not saying that we're being cheated of our money or that it's lining the pockets of the GIC or anything. In fact, there have been one or two times when the CPF rate exceeded inflation, but it's the principle that makes me go... As this 2002 Asian Development Bank Institute paper by Mukul Asher had also asked, “How valuable is the guarantee of 2.5 percent nominal return? As the long-term annual inflation rate in Singapore is about 3.0 percent, the guarantee does not even preserve the principal in real terms.” Never mind that CPF Life itself doesn't even offer payouts that are pegged to inflation (yet - the G is looking into it, who knows how long it will take, good luck grandma). Forced to invest like a retiree What kind of fund buys the bonds of a single government exclusively as the be-all and end-all of its investment plan? Yay for mega-stability and reliability, but that sounds like a terrible investment strategy to me when you think of the bigger picture (caveat: I'm not an investment professional). Basic principles such as diversification and risk appetite and your age aren't even taken into consideration. This flies against all the conventional wisdom I've read from Ryan Ong (of MoneySmart fame). Isn't the principle that each person pays for themselves? I agree with that principle, but CPF hasn't stuck to it when it comes to investing "our money" - it's not tailored to represent us as a whole, or as individuals, and the returns, as a result, often disappoint (emotionally). When you're young, you put your money down in housing; when you reach middle age, equities tend to be the way to go. Finally, when you're all done earning, saving and profiting, the conventional wisdom is to keep your money in bonds, MMFs, and other low-risk-low-return instruments, so that the stash you've built up will last you for as long as you hoped it will. The whole point of a fund like CPF is that a professional fund manager should be doing the investing and making well-educated decisions for us. Instead, we've got what looks like the laziest investment plan on the planet - handing cash to the G (to invest for its own, separate, purposes) for the promise of a safe but flaccid return. Great for retirees. Most of us aren't retirees yet, and some may never be. CPFIS: forced savings or playing around? So, we're saving for retirement - I get that. But what's this CPFIS thing that allows folks to go play around with a small pool of not-too-efficient investments on their own? What happened here? Did people complain about not having control over their money so some halfway solution was built to let people feel like they can play with their money a little (and generally lose it, since only 40% of CPFIS investments outperform the CPF rate of returns)? So, are we putting forced savings with Big Brother or investing our own money? If you ask me, I'd rather have a proper fund manager for my CPF. That's why we pool billions of dollars, isn't it? Static income cap, moving savings goal The income cap of $4,500 has been around for a while. Why does it exist? Why does it exist at that level? Why hasn't it changed after years and years? The Minimum Sum savings goal moves. Wages increase (usually). Inflation. Shouldn't the income contribution cap have gone up by now or is nobody keeping an eye on it? So before anyone throws the accusation - I'm all for CPF. It's helped poor, financially indisciplined me save enough to pay for a home and hopefully enough medical to keep me working to the end of my days. But some things just don't click for me. Anyone got enlightenment? Daniel Yap * The author blogs at Signs of Struggle.  Read More →