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While Norway insists on transparency, our Familee-managed SWFs prefer the fishing in muddy waters

Yesterday the Financial Times reported that Norway’s Finance Ministry had forbidden its sovereign wealth fund (SWF) from investing in private equity. In the article the Norwegian Finance Minister said that “Private equity does not fit the model we have chosen for the fund. The greatest challenge is openness, information we can share with the public.” 

The article also quotes Ludovic Phalippou, a finance professor at the University of Oxford’s Saïd Business School and author of Private Equity Laid Bare:

The private equity model is a difficult one for the Norwegians to get their head around. It is hard to feel comfortable to invest via funds which can basically do whatever they want in terms of fees and expenses. They may have become more transparent but whatever information they provide is not easy to process and incentives remain misaligned in most funds.”

Since 2009 I have questioned our need for not just one, but two, SWFs. The standard economic justification for an SWF is where you have an exhaustible resource, like oil, and want to ensure that as it is used up it is replaced by capital, either financial assets or infrastructure. Norway is the perfect example. In the Norwegian case there was also a desire to avoid the curse of mineral wealth, which is an overvalued exchange rate and a squeeze on manufacturing which becomes uncompetitive. This is something that happened to both the Netherlands (with natural gas) and the UK (with North Sea oil) in the 1970s and 1980s.

This justification does not apply to Singapore where our SWFs have been built up by a deliberate mercantilist policy of excess saving achieved by holding down wages and consumption through CPF and budget surpluses. However if you were going to have an SWF then the Norwegian model is the one Singapore should emulate. Norway’s Pension Fund is run explicitly for the benefit of the people, is totally transparent (you can see its real-time valuation at and is essentially an index fund owning on average 1.4% of every listed global company.

As I have said, much of Temasek’s supposed superior returns come from the injection of underpriced state assets, like SingTel and Singapore Airlines, at inception which then produced spectacular returns when they were listed. Temasek and GIC do not release much detail about their returns or valuation policies but it is doubtful that they have outperformed the Norwegian Pension Fund on a transparent and equivalent basis.

In July 2017 Temasek’s head of strategy, Michael Buchanan, said in an interview with Bloomberg News, that Temasek was planning to buy more unlisted assets and that “We have some advantages in the private space.” It is easy to see why unlisted assets and private equity would be attractive to Ho Ching and GIC. Valuations are opaque and there is more than a suspicion of collusion between the leading private equity firms to keep prices high for the purposes of marking their books. This was demonstrated recently when Softbank bought a stake in Uber at a valuation of US$48 billion a 30% discount from the previous funding round valuation of US$68 billion. At the same time Softbank led a fresh investment round of US$1.25 billion at the old higher valuation with no other purpose than to allow existing shareholders to continue to price their holdings at the older inflated price. Clearly losses and a multitude of other sins can be covered up.

Additionally as Phalippou is quoted as saying above, the non-transparent fee structure may allow Ho Ching, the Lee family and the managements of Temasek and GIC to siphon off some of the funds or to co-invest their own money on preferential terms with inside information not available to ordinary Singaporeans. Ho Ching’s remuneration remains a state secret that Tharman said is not in the public interest to disclose which strongly suggests that her earnings amount to billions of dollars over the years. These bonuses become much easier to justify if valuations become easier to manipulate.

Unlike Norway, Singapore’s SWF’s are not accountable to Parliament but only to Lee Hsien Loong (Chairman of GIC) and his wife. The WP have never made any attempt to push for greater accountability. The words of Khaw Boon Wan, uttered in Parliament in February 2015 during a debate on WP’s management of the Aljunied-Hougang-Punggol Town Council, “Where the water is murky, it’s easier to fish. Opacity creates opportunity for crooks to make money.” I noted the exquisite irony when I wrote about it then in “The Problem with Husbands and Wives in the WP, in the Ruling Family, in Our Reserves. I also pointed out the irony of Hari Kumar saying that it’s not that the AGO did not note any criminal activity, but that the AGO does not know if there was because of the state of AHPETC’s records. Similarly we have no idea whether there is anything fishy going on at Temasek or GIC because of the deliberate lack of transparency. Investing in unlisted assets and private equity adds another welcome and easy to exploit layer of opacity for their managers.

Norwegian waters, whether full of oil or not, are clearly much more transparent than the murky waters Ho Ching, Lee Hsien Loong and the managements of GIC and Temasek like to fish in. Clearly, as long as the PAP maintain their hegemony in our travesty of a Parliament while an Opposition not worthy of the name colludes in keeping them in power,  we are never going to know just how good the fishing is.




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