Monday, December 22, 2008

Singapore's sovereign wealth funds - GIC and Temasek Holdings

Sovereign Wealth Funds being in the news lately, I've gotten a few questions about the difference between Singapore's two SWFs: Temasek Holdings and GIC (the Government of Singapore Investment Corporation).

Here's the summary:

1. They are 2 separate and distinct companies, and from legal structure standpoint, they are incorporated as Pte Ltd companies, under the Singapore Companies Act.

2. Both companies are owned by the Minstry of Finance, who is the controlling shareholder.

3. It looks like Temasek Holdings spends more of its time investing the surplus funds of the Singapore Government, whereas GIC spends most of its time investing Singapore's foreign reserves (the amounts in excess of what MAS needs for use in exchange operations). I've created a diagram that illustrates the difference. It's not a strict division though. In an interview published here, Mr Ng Kok Song of GIC indicated that Temasek Holdings also invests some of Singapore's foreign reserves.

(Click on the image to expand it)

I also use this diagram to explain how the economy works. By necessity, this diagram is a simplified view of the economy, but it does explain the key elements. (The real economy and financial system is vast and complex; I have made simplifying assumptions in the digram)

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