By: Chris Kuan
Did Roy Ngerng read my post earlier today when I said Temasek was talking cock about not managing government savings and their funds are derived from its business as owner and investor? Does not matter because although seemingly similar, the substance is different.
I was referring “government funds or reserves”, he was writing about CPF. However saying Temasek is given reserves to manage (my post) is very different from saying Temasek is given CPF monies to manage (his post). I can understand it is easier for political rhetoric for Roy to conflate “reserves” with “CPF” and simpler for Singaporeans, not known for thinking too deeply but the ecoomic and legal difference is huge. Let me explain.
CPF members’ funds did not move from CPF to the government’s balance sheet unchanged in form and substance. This is because the CPF Board acting as trustees have used members’ funds to purchase Special Singapore Government Securities (SSGS). Therefore the government has received funds as debt proceeds from the issue of SSGS which are indistinguishable from other debt proceeds raised from the issuance of other Singapore Government Securities (SGS) to bond investors such as foreign investors, banks and insurance companies in the quoted bond market.
The debt proceeds raised from the purchase of SSGS and SGS by investors which include CPF, are comingled with other funds such government revenues, operating cash and surplus. Some of the monies are spent as government expenditures, most are invested predominantly by GIC. Do note that the funds do not actually leave the government balance sheet going into GIC’s balance sheet. The funds and therefore the assets purchased by the funds remained in the government accounts with GIC acting only as an asset manager not an asset owner. This is different from Temasek who is an asset holder. This is also why I said Temasek is talking cock – the capital injection came from the government, i.e. from the comingled pool, so how can that not be managing government savings?
Therefore GIC is investing government funds which includes reserves, it cannot be said to be investing CPF monies even if CPF monies were used to invest in SSGS which provided debt proceeds that form part of government funds. Get this straight, CPF monies are invested in SSGS. What the government does with the proceeds from the sale of SSGS to CPF is legally and economically separate from CPF.
This would have been different if CPF monies are invested as trust funds in an asset pool managed by GIC. This would be similar to an investment in a unit trust. CPF is then entitled to the returns generated by GIC in that asset pool.
The problem rests with those SSGS investments by the CPFB. The investment transform the substance of members’ funds. But here is what I will suggest to Roy,
Question the legal validity of the SSGS. They are a strange type of bonds – no final maturity and yet are not called perpetual bonds, non-negotiable and yet called securities, and most of all the interest rates are decided at the entire discretion of the issuer, i.e. the government. Are the SSGS in accordance to the legal definition of bonds? If they are not in accordance, then they may not be regarded as bona fide securities. This will transform the whole meaning of CPF funds in the process of moving into the government’s balance sheet. This, I believe, is the weakness in the entire edifice.
One thing though – be careful what you wish for. If CPF monies are not invested in SSGS and instead invested in the GIC asset pool, members will lose the government guarantee and must expect potential losses even if the returns are higher. I am just not sure how many afraidy cat Singaporeans would like this.