By Saeed Azhar and Kevin Lim
5 Oct 2008
SINGAPORE (Reuters) - When Tony Tan, executive director of Singapore's biggest sovereign wealth fund, warned in July the world might plunge into its worst recession in 30 years, many shrugged off his remarks as too gloomy.
Three months later, Tan's prophecy of doom is becoming a reality as the credit crisis ravages U.S. and European banks and takes a growing toll on the global economy.
Tan's Government of Singapore Investment Corp (GIC) is meanwhile sitting with 7 percent of its estimated $300 billion portfolio in cash and another 26 percent in G7 government bonds.
Tan, a 68-year old former finance minister, professor and banker, and his team are now cautiously sifting through the financial carnage to shop for distressed assets in the United States in an effort to boost long-term returns for Singapore's central bank.
GIC released its first performance report last month, after increased scrutiny of sovereign funds by Western lawmakers who want them to be more transparent, and revealed a 4.5 percent real return in Singapore dollar terms over 20 years.
"We should not assume that the worst is over and we continue to be watchful and prudent in our assessment of the economic risks and in our investments," Tan, also the fund's deputy chairman, told reporters at the launch of the report.
Song Seng Wun, a Singapore-based economist with Malaysia's CIMB, said Tan's long stint with the private and public sector makes him experienced enough to guide GIC through the crisis.
"I don't think you can compare him to an investor like Warren Buffett," he said. "But he is an old hand who has seen the ups and downs of the Singapore economy and it is good to have someone like him steering the ship."
GIC, which manages part of Singapore's foreign reserves, plowed $18 billion into UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) and Citigroup (C.N: Quote, Profile, Research, Stock Buzz) in December and January, though shares of the two banks have since fallen as the credit crisis tightened its grip.
By contrast Buffett, regarded as one of the world's greatest investors, waited until the past two weeks to spend $8 billion on shares in Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) and General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz).
CONTRARIAN
Tan has said U.S. investments will remain a big part of his portfolio, but GIC has said it may fancy using some of its cash to buy emerging market stocks in its backyard of Asia.
Tan joined GIC in 2005 after a stint as CEO of Singapore lender Oversea-Chinese Banking Corp (OCBC.SI: Quote, Profile, Research, Stock Buzz) and over a decade in politics, which followed a PhD in applied mathematics.
"He has a quiet disposition, he doesn't talk very much," said Eu Wing Kee, a secondary school teacher of Tan's. "But when he talks he knows what he is talking about."
Tan, who always has his white hair slicked back and wears vintage dark-rimmed glasses, became finance minister and was tipped by Singapore's first prime minister Lee Kuan Yew as his successor. The post eventually went to Goh Chok Tong in 1990.
"He has a quick brain and there is a decisive quality about him. He listens, takes all points of view and decides," Lee said of Tan in 1988. Lee is the chairman of GIC but leaves the day-to-day running of the fund to Tan.
People who have worked with Tan described him as consultative during decision-making but dogged once his mind is made up, with the courage to take a contrarian view.
GIC has limited its losses on UBS and Citi by taking advantage of price reset clauses in its original agreements after the two banks raised more cash to repair their balance sheets. And Tan has said GIC has room for investing in another bank.
"We always look at the risk first," Tan said in January. "Our philosophy is if you look after the downside, the upside will look after itself."
(Editing by Neil Chatterjee & Lincoln Feast)
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