The returns on our Reserves is … ?

We refer to the article “Govt used close to maximum allowed returns on reserves” (Straits Times, Apr 15).

Half of the returns on the Reserves is used?

It states that “For its Budgets, the Government is allowed to use up to half of the long-term expected returns from investing past reserves.

These are net assets managed by the sovereign wealth fund GIC, the Monetary Authority of Singapore and Temasek Holdings.

An estimated $8.1 billion will be taken from the net investment returns for this Budget, up from $7.9 billion the year before.”

Reserves is a secret?

According to the Government – “MAS and Temasek publish the size of the funds they manage. As of 31 March 2013, the Official Foreign Reserves managed by MAS was S$320 billion, and the size of Temasek’s portfolio was S$215 billion.

It is the size of the Government’s funds managed by GIC that are not published”

Estimated to be $800b to $1 trillion?

– The Straits Times has estimated our total reserves to be around $800 billion, whilst others have estimated it to be from $800 plus billion to $1 trillion.

“Investment returns” is … ?

If we assume the conservative figure of $800 billion – assuming a very conservative 4% rate of return – half of the investment returns is $16 billion (half of 4% of $800 billion).

So, since $8.1 billion will be taken  “from the net investment returns for this Budget”- we are short of $7.9 billion ($16 – $8.1 billion).

Even if we just take the known sum of Temasek and MAS, at $535 billion ($320 + $215 billion) – half of the net investment returns on this sum alone is $10.7 billion (half of 4% of $535 billion). We are thus still short of $2.6 billion ($10.7 – $8.1 billion).

If we add the lowest possible figure of GIC at $100 billion (“well over $100 billion”) to the $535 billion – we get $635 billion. This would give us a half of net investment returns of $12.7 billion. So, we are still short of 4.6 billion ($12.7 – $8.1 billion).

So, you can see from the above that the numbers do not add up or don’t seem to make any sense.

Unless, perhaps the  “long-term expected returns from investing past reserves” is only about 2% ($8.1 billion x 2 divided by $800 billion)?

In this connection, Temasek and GIC’s historical returns were 16% (S$ terms 39 years) and 6.5% (US$ terms 20 years), respectively.

SY Lee and Leong Sze Hian

About the Author

Leong Sze Hian has served as the president of 4 professional bodies, honorary consul of 2 countries, an alumnus of Harvard University, authored 4 books, quoted over 1500 times in the media , has been a radio talkshow host, a newspaper daily columnist, Wharton Fellow, SEACeM Fellow, columnist for theonlinecitizen and Malaysiakini, executive producer of Ilo Ilo (40 international awards), Hotel Mumbai (associate producer), invited to speak more than 200 times in about 40 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of 2 countries. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.