Our Portfolio and How We Manage It

GIC’s investment strategy is to build a portfolio comprising asset classes that generate good long-term real returns, while adhering to the Client’s (the Singapore Government) risk parameters.

Our mission is to preserve and enhance the international purchasing power of the reserves placed under our management by delivering good long-term returns above global inflation.

To this end, we established an investment framework that equips GIC for an increasingly challenging and complex investment environment. Adopted in 2013, the framework leverages GIC’s strengths, including our ability to invest for the long term, flexible capital and governance structure.

Investment Process

As a disciplined long-term value investor, we take a systematic, patient and diversified approach in seeking investment opportunities, where there is a clear difference between the current price and intrinsic value of an asset.

GIC’s investing approach is underpinned by our discipline to distinguish price from value. An asset’s price is driven largely by market sentiments, while its value is its fundamental worth. Anchored by this perspective, we seek to appraise value appropriately and adhere to price discipline, even when it sometimes means going against prevailing market sentiments.

To determine where true fundamental value lies, we identify and assess drivers of long-term value as a core part of our investment process. This approach comprises top-down and bottom-up analyses for all investments. In the top-down analysis, we review a country’s macroeconomics, politics, currency and corporate governance culture, as well as sector fundamentals such as industry structure, drivers and trends. This top-down approach is similar for asset classes in public and private markets.

Our bottom-up analysis is more varied and depends on the assets we invest in. For example, in public equities, we focus on the stock’s fundamentals, such as the company’s business model and its competitive strengths, balance sheet, profitability and management. In real estate, our teams conduct bottom-up analysis based on property-specific factors such as location, building quality, tenant mix, lease expiry profiles and income stream outlook. Our value investing mindset is the common underlying principle.

To deliver good long-term returns, we consider all opportunities and risks that could drive investment value in the long run. These considerations, which include track record, ability and integrity of management teams and business practices, are integral to our investment process. We expect our investee companies to comply with applicable laws and regulations and apply appropriate corporate governance and stakeholder engagement practices.

We also actively advocate long-term thinking in the wider community, as exemplified by our participation in initiatives such as Focusing Capital on the Long Term Global and the International Forum of Sovereign Wealth Funds.

Investing Sustainably It is our belief that companies with good sustainability practices are likely to generate strong investment returns over the long term, on a risk-adjusted basis. Our approach hence integrates sustainability considerations into our investment and corporate processes. Taking a long-term perspective GIC invests to preserve and enhance the long-term value of our total portfolio. Sustainable long-term investing requires holistic assessment of risks and returns. Corporate practices in the areas of environment, social and governance (ESG) have generally impacted long-term value, and are therefore an important consideration in our investment decision process. Establishing a robust sustainability process GIC’s assessment of a company’s value includes an evaluation of the sustainability practices of the company and their potential impact on its value. We embed such considerations into the investment process, by including sustainability factors in investment analysis, due diligence and risk assessment. Additional due diligence is conducted on companies with greater exposure to sustainability issues. Responsible stewardship We are guided by sound stewardship principles to promote sound corporate governance and sustainable business practices. We engage with portfolio companies on sustainability and exercise our voting rights in a responsible manner. Our voting choices are informed by a set of global principles and policies, while being sensitive to local differences. Our votes reflect our long-term view and sustainability beliefs.

Managing Risks

Investing involves prudent risk-taking. Identifying and managing risk is therefore a core responsibility of all GIC staff. Each employee has individual accountability and clearly defined responsibilities within our risk management framework. This ensures risks taken are in line with the risk tolerance set by the Client.

Risk Management Objectives GIC’s risk management objectives are to ensure that: The investment strategies pursued are consistent with the risk tolerance set by the Client, and within defined bounds authorised by the Client, Board and Management. The risks associated with each investment are well-understood. Policies, guidelines and control processes are in place to reduce the likelihood of significant losses. Any reputational impact due to our actions is carefully managed.

Risk Governance

The GIC Board provides ultimate risk oversight. The Board approves the Policy Portfolio which is constructed with our Client’s long-term real return objective and risk tolerance in mind. Deviation of asset allocation exposure from policy benchmarks is constrained by a set of operating bands around the Policy Portfolio’s target weights. In addition, the GIC Board sets an active risk budget to limit the risk arising from the deviation of the Active Portfolio from the Policy Portfolio. The GIC Board is supported by the Board Risk Committee, which advises the Board on risk matters. The Board Risk Committee sets the overall direction of risk management policies and practices in GIC. In addition, it reviews significant risk issues arising from GIC’s operations and investments.

The Group Executive Committee is the highest management body in GIC. It deliberates on investment and risk issues before they are submitted to relevant board committees. It is also the forum that assesses and makes determinations on fiduciary risk and reputational risk issues.

The Chief Risk Officer (CRO) is a member of the Group Executive Committee and reports to the Chief Executive Officer (CEO) and Chairman of the Board Risk Committee. The CRO is accountable to the Board of Directors, primarily through the Board Risk Committee, on all risk-related matters.

The CRO chairs the Group Risk Committee that is vested with responsibility to oversee implementation of risk policies, review significant risk issues from investments and operations, as well as to ensure the resolution of these issues.

Three Lines of Defence

GIC’s risk management model operates along “three lines of defence” which ensure that there is clarity and transparency in risk ownership and accountability.

The First Line: Operating Units

People are the cornerstone of any risk management system. All GIC staff are expected to act with integrity and exercise sound judgement; they need to understand, evaluate and carefully manage the risks that they take.

All operating units own, and are primarily accountable for, the risks inherent in their activities. They are responsible for ensuring that an appropriate risk-and-control environment and robust processes are in place as part of their day-to-day operations. Our risk assessments are forward-looking and form an important element of our long-term approach. We consider a broad spectrum of risks with potential long-term impact, including sustainability risks and risks from activities managed by appointed agents.

The Second Line: Independent Risk Functions

Risk management and control functions independent of the risk-taking business units are the second line of defence. They provide appropriate day-to-day risk oversight and control. These functions include risk management, legal and compliance, information and technology risk management, as well as tax and finance. While they each have their defined set of responsibilities, they also work collectively to provide the requisite checks and balances to the risk-taking activities of GIC’s investment groups.

The Third Line: Internal Audit

Our Internal Audit Department (IAD) forms the third line of defence. It provides an independent assessment and assurance on the adequacy and effectiveness of our internal risk management controls. It reports functionally to the Chairperson of the Audit Committee, and administratively to the CEO.

Risk Management Approach

Our approach to risk management is multi-pronged:

I.	Managing portfolio investment risk to ensure that risk taken is consistent with our mandate and commensurate with expected returns;
II.	Managing legal, regulatory and compliance risks to safeguard the reputation and interests of GIC and our Client, and to comply with applicable laws and regulations;
III.	Managing tax risk to ensure compliance with the tax laws of applicable jurisdictions;
IV.	Managing operational risk through an effective system of internal controls and processes to support GIC operations;
V.	Managing cyber security, technology and information risk to ensure that our technology resources and information are well-protected;
VI.	Managing counterparty credit risk to minimise the impact to GIC if any counterparties were to default;
VII.	Managing reputational risk; and
VII.	Managing people risk.

The multi-pronged approach to risk management, complemented by the three lines of defence, ensures that risks within the portfolio are looked at in a comprehensive manner. While risks remain, they are well identified and managed within established risk tolerance.

GIC’s mandate is to generate good long-term risk-adjusted returns.
GIC’s Risk Management Objectives
1. The investment strategies pursued are consistent with the risk tolerance set by the Client, and within defined bounds authorised by the Client, Board and Management.
2. The risks associated with each investment are well-understood.
3. Policies, guidelines and control processes are in place to reduce the likelihood of significant losses.
4. Any reputational impact due to our actions is carefully managed.

Risk Types

Investment Risk	Tax Risk	Cyber Security, Technology and Information Risk	Reputational Risk
Legal, Regulatory and Compliance Risk	Operational Risk	Counterparty Credit Risk	People Risk

Investment Risk

Legal, Regulatory and Compliance Risk

Tax Risk

Operational Risk

Cyber Security, Technology and Information Risk

Counterparty Credit Risk

Reputational Risk

People Risk

Managing Portfolio Investment Risk

Policies, guidelines and processes are established to ensure consistency and clarity across the firm, while reducing the likelihood of significant unexpected losses to the assets under management. The policies and guidelines translate our investment mandate and risk management principles into standards that guide our day-to-day activities. For example, the group-wide investment approval framework sets out the approving authorities for investments based on size. Another example is the cost-of-capital framework which determines an appropriate performance hurdle for each active strategy that includes the cost of funding these strategies and a premium for additional risk undertaken.

We identify, measure, report and monitor all the risks that are assumed. GIC employs a suite of measures including volatility, risk concentrations, sensitivities to risk factors, liquidity profile and expected shortfall to identify and analyse the risks in the portfolio from both top-down and bottom-up perspectives. Each measure is designed to highlight a specific aspect of the portfolio that could lead to an undesirable outcome. These statistical measures are supplemented by a set of stress tests and scenario analyses. Reverse stress tests further help to identify otherwise undetected risks that could lead to large or sustained drawdowns. The risk management function sets and monitors performance and risk review thresholds independently to highlight potential changes in risk-taking behaviour and inconsistencies with the stated risk and return assumptions.

Managing Legal, Regulatory and Compliance Risks

Legal and regulatory risks relate to uncertainties in the interpretation and application of laws and regulations, the enforcement of rights or the management of potential litigation, breaches in contracts, laws or regulations. Compliance risk refers to the risk of legal or regulatory sanctions, financial loss or reputational damage arising from non-compliance with applicable laws and regulations.

GIC’s compliance programme comprises robust policies, procedures, effective controls, monitoring and surveillance. The implementation of a rigorous compliance programme is underpinned by a strong culture of ethics and compliance. All staff are required to observe the policies and procedures set out in GIC’s Compliance Manual (incorporating the Code of Ethics), comply with all applicable laws and regulations, uphold exemplary conduct and act with integrity at all times. Regular and targeted training is conducted and an annual compliance quiz is administered, to reinforce awareness and understanding and to strengthen GIC’s compliance culture. The compliance programme also requires that all staff adhere to their confidentiality obligations and responsibilities.

The investment and operations teams collaborate with the legal and compliance function to manage legal, regulatory and compliance risks arising from the group’s investment activities. The legal and compliance function monitors compliance with laws and regulations, including laws on securities trading and investment, competition law requirements, financial crimes compliance, and licensing and regulatory approvals. Emerging legal and regulatory issues and proposed regulatory changes are also closely monitored. Additionally, the in-house legal team works with external lawyers to address legal risks.

Managing Tax Risk

GIC’s Tax Risk Management Framework underscores our commitment to be compliant with tax laws, rules, regulations and obligations set by the respective governments of the jurisdictions in which we invest and operate. We ensure that tax-related decisions are handled with professional skill, care and diligence, with relevant documentation that evidences the facts, considerations and decisions taken. We seek written advice, opinion or confirmation, where appropriate, to substantiate our tax positions. Our tax positions and obligations are clearly represented in line with applicable tax laws and regulations. We also engage with tax authorities in an open, constructive and professional manner.

Managing Operational Risk

All investment and operations staff are required to identify, evaluate, manage and report risks in their own areas of responsibility, and to comply with established risk policies, guidelines, limits and procedures. For example, new investment products or strategies are subject to a risk identification and assessment process conducted by a cross-functional group. This ensures that all risks associated with the new product or activity are identified and analysed prior to investment or engagement. We must be satisfied that the required people and infrastructure, including systems, risk modelling, procedures and controls, are in place to manage these risks before the investment is permitted.

We continuously assess the control environment to ensure that any control weakness is promptly identified and addressed. Policies and procedures are established to safeguard the physical security and integrity of GIC’s technology and data assets. Throughout the year, internal and external auditors scrutinise all operations and business processes. Any deficiencies identified must be addressed within set time frames and reported to senior management.

Our business continuity plan is tested and reviewed regularly to ensure that our procedures and infrastructure can support operations in the event of a business disruption. This enhances corporate resilience and safeguards the group’s operations.

Managing Cyber Security, Technology and Information Risk

As GIC adopts advanced information technologies (IT), we recognise the importance of having strong cyber security defences and robust internal controls for our operating environment. A dedicated team of cyber security and IT risk management professionals maintains our cyber defence capabilities, as well as oversees technology operations and usage of IT across the organization. With the evolution of our business and the IT landscape, we continue to invest in people, processes and tools to protect GIC’s technology resources and information.

Managing Counterparty Credit Risk

GIC adopts a strong control orientation in managing counterparty credit risk, trading only with financially sound and reputable counterparties. A stringent selection and approval process is in place to appoint counterparties. We review the counterparties and monitor our counterparty exposure against set limits. Counterparty profiles are regularly reported to senior management. Other measures to mitigate credit risk include using netting agreements and programmes requiring counterparties to pledge collateral.

Managing Reputational Risk

Managing reputational risk is part of GIC’s overall risk management framework. Our governance and investment processes ensure that we exercise caution and do not take on undue reputational risk in our pursuit of returns.

Managing People Risk

We require our staff to observe the applicable laws and regulations, GIC’s internal policies and procedures, to conduct ourselves in an exemplary manner at all times and uphold GIC’s fiduciary duty to our Client.

Consistent with our long-term orientation, GIC’s remuneration policies and practices support and reinforce a prudent risk-taking culture, as well as recognise and reward our people on the basis of long-term results. We are committed to developing our employees to their full potential for the long term through many learning programmes. We continue to develop a strong leadership bench for GIC, allowing us to build new investment capabilities and extend our investment and operating platforms.

People are at the heart of our business. Our PRIME values are the compass in the management of our people, processes and portfolio. Assessment of these values is included in our staff appraisals.