This year marks the 40th anniversary of GIC. In celebration of this milestone, Made of Bold commemorates the founding leaders’ vision of forming an entity dedicated to managing Singapore’s reserves. These bold stories have laid the foundations of GIC’s values and purpose in securing Singapore’s financial future.
These bold stories are from the publication Bold Vision: The Untold Story of Singapore’s Reserves and Its Sovereign Wealth Fund.
A Singular Man
As the economic architect of modern Singapore, Dr Goh Keng Swee wrote many budget speeches and policies. But unbeknownst to many, he was largely responsible for the first chapter of the nation’s bold reserves management story.
After separation, Singapore was keen on establishing a Common Currency arrangement with Malaysia. However, the status of a piece of land at Robinson Road in Singapore became the focal point for dispute, leading the island nation to stand its ground and inevitably resulting in a currency split.
Donning A Straitjacket
Amidst challenging social, political and economic uncertainties, a young nation stood against conventional wisdom and established a currency board system. This decision built confidence in the Singapore dollar in the early days of nation-building.
The Sterling Raj
Singapore was at the mercy of sterling’s fate – it was obliged to hold its reserves in sterling but a devaluation of the pound would mean substantial foreign exchange losses for the small nation. The Sterling episode saw a heated exchange of letters between then-British Chancellor of the Exchequer Roy Jenkins and Dr Goh Keng Swee.
Dr Goh Keng Swee and his team circumvented a US-led embargo to buy gold with an ingenious and clandestine idea of using two halves of a torn dollar bill to verify the identity of the officials involved.
A Productive Interregnum
When MAS was formed in 1971, it started off with a blank canvas – an unheard-of mix of a quasi-central bank and a currency board. The institution was not just permitted to, but tasked to invest for returns and profit, which was a pioneering approach to investing reserves for returns at the time.
Genesis of an Idea
GIC was conceived in just 7 months – from a mere idea in Dr Goh’s mind to the day he issued the press statement to announce the establishment of a new investment company.
Today, GIC may be recognized as one of the top sovereign wealth funds in the world, but its story has a very humble beginning – the company’s first Managing Director began his tenure with only a desk. There was not even a chair, until he found one in an unused room.
The concept had to be turned into reality. It was done pragmatically and expeditiously. There was no inauguration ceremony, no fanfare to mark the birth of the new company. The company’s first managing director began his tenure with only a desk and an unusable telephone. He had no staff, not so much as a secretary. Observers might have doubted if the new company, which did not even have a name then, was a serious concern. Events would prove these doubts to be unfounded. How GIC became a going concern is a story of initiative, resourcefulness and sense of duty.
On 9 March 1981, Dr Goh released a press statement on the recent appointments he had made at the Monetary Authority of Singapore (MAS) and at the proposed government investment company. The Rothschild consultancy was also announced.
One of the appointments was of Dr Teh Kok Peng, previously of the World Bank, as head of the Economics Department at MAS Dr Teh would eventually hold senior positions at both MAS and GIC, including as president, GIC Special Investments, the private equity arm of GIC.
Dr Goh also announced the appointment of Yong Pung How as managing director of the yet-to-be-named investment company. Yong was to be released on no-pay leave from OCBC, where he was vice-chairman.
Yong was multi-talented, a lawyer by training but also an accomplished banker, administrator and businessman. Malaysian-born, he had read law at Cambridge University and later attended Harvard Business School. He practised law for many years at his father’s law firm, Shook Lin and Bok, in Malaysia and was chairman of Malaysia-Singapore Airlines from 1964 to 1969.
Yong’s career in banking began in 1969 when, at the request of the Malaysian central bank he was appointed vice-chairman of Malayan Banking to help in its reorganization. After a stint as chairman and managing director of the Singapore International Merchant Bankers Limited and the Malaysian International Merchant Bankers Limited, Yong became vice-chairman of OCBC Bank in 1976.
Lee Kuan Yew later recalled that he and Dr Goh had looked for “someone who was, first, trustworthy and, second, careful” to helm GIC. Lee chose Yong because he knew him well, having been together with him at Cambridge University, and had found him over the years to be someone of impeccable integrity. Still, when Dr Goh approached him, Yong was startled, for the proposal had come “out of the blue”.
He initially “declined Dr Goh as politely as (he) could”, citing his lack of experience in investments as the reason. In addition, he was being groomed then to succeed Tan Chin Tuan as the chairman of OCBC Bank, one of the largest Singapore banks. So, Yong was loath to leave the bank just then, he explained to Dr Goh. Later that day, Yong wrote a note to his Chairman Tan, explaining that he had met Dr Goh and had turned down his offer. But that was not to be the end of the matter.
The next evening, Tan walked into Yong’s office to inform Yong that he had lunched with Dr Goh that day and had had discussions with the other directors. The upshot of these meetings was that OCBC was prepared “to lend” Yong to the government. So Yong dutifully set off to see Dr Goh again the next day. Dr Goh told him little more than that he was expected to set up the new unit and “take it over the first hump”. Yong accepted the challenge, taking a pay cut in the process.
Hochstadt showed Yong to a room formerly occupied by Dr Goh. Dr Goh had vacated it only recently to move to the Ministry of Education headquarters. The room was bare save for a huge desk and an odd-looking contraption that turned out to be a telephone scrambler. Hochstadt explained that the phone was connected directly to the prime minister’s office and had been used by Dr Goh to call Lee. A key that nobody seemed able to locate was needed to activate the phone. There was no chair. So Yong had to sit at his desk and lean over with a pencil to write his memorandums, before walking a few floors down to the pool of typists to get them typed up. Subsequently, Yong found a chair in an unused room and dragged it to his office.
As if this was not enough of an inauspicious start, Yong’s ego was to take a further battering when Dr Goh introduced him to Lim Kim San. Lim had just been appointed managing director of MAS a few days earlier, on 1 March, and had his office on the same floor as Yong’s. It was a “terrible introduction”, Yong recalled. Lim had brusquely asked Dr Goh why he had brought in “this young whippersnapper” who would only be interested in “empire building”. Yong was mortified – and doubly so when he found out, upon checking the dictionary later, what “whippersnapper” meant:
Whippersnapper: n., an unimportant but offensively presumptuous person, especially a young one.
To Yong’s credit, he did not let all this get to him. Soon, he would impress Lim with his business-like ways and lapidary submissions. Yong knew that the relationship had turned when one morning Lim offered to “belanja” or treat him to lunch. Later, Lim would support the idea of Yong taking over from him as managing director of MAS. And when Lee sought Lim’s opinion about Yong’s suitability to be a high court judge and later chief justice, Lim seconded the proposals, remarking that it would be a case “of fish returning to water”.
But all that was in the future. In his first months at the company that had as yet no name, Yong had to forage for staff. He asked Hochstadt for advice and Hochstadt pointed him in the direction of Tan Teck Chwee, then chairman of the Public Services Commission (PSC). The PSC was in charge of awarding government scholarships to deserving students and posting them to various government departments upon their graduation. Yong called on Tan, who told him that the PSC was short of scholars. Indeed, at the request of Dr Goh, it had only recently sent some of its best officers to MAS. Nevertheless, Tan did manage to secure one fresh graduate for Yong.
Yong also enquired about getting a secretary for himself. Strangely, he was told that the government had no provision for a secretary for his position. Yong eventually brought over his secretary at OCBC. Together, they then “cleaned up the room, bought some furniture, arranged for a telephone, typewriters, shredding machine, copying machine and so on and we got started”.
There was another fundamental issue that had to be resolved urgently: the form the proposed company should take. Dr Goh had asked Yong to consider the matter and make recommendations.
Yong’s knowledge of the law and his banking experience came in handy here. He suggested that the new entity be incorporated as a private limited company, wholly owned by the government and which would manage, but not own, the foreign reserves under its charge. Yong’s reasoning for this arrangement was that it would leave the investment company free of various complications arising from the ownership of foreign assets, especially with regard to taxation. The country’s assets also “would be better protected that way” as it would still be owned by the government. As Yong put it, structuring the new company “as a management company was the simplest arrangement.” It turned out to be the correct arrangement. “Had GIC owned its assets, we would have been caught in all sorts of difficulties”.
Dr Goh asked about the legal structure that would provide for the government’s ownership of the company. Yong said the solution lay in a legal concept known as corporation sole. Corporation sole allowed for the creation of a legal entity of a public office, which would be independent of the individual occupying that office. Thus the office of the minister for finance, for example, could be the Minister for Finance Incorporated, which would be the owner of the investment company. This entity would retain its legal power regardless of who the minister of finance was. Lee and Dr Goh accepted Yong’s recommendations.
Yong also recommended that the new company begin with a small staff. MAS had efficient administrative and corporate services divisions. The new company could “piggyback” on MAS for these services, including accounting, auditing and personnel management, rather than develop them on its own. It could also continue to operate out of the MAS premises.
Yong then set out to incorporate the company. He asked the Attorney-General’s Chambers to draft the memorandum and articles for the new company. A draft was delivered to him the same day and he realised that it was essentially the standard form for the incorporation of companies. Deciding however that it was good enough for his purposes, he submitted the completed documents to the Registry of Companies. In those days, before the civil service computerised its operations, it usually took about two weeks to incorporate a company. But the Registry told Yong that it could issue the certificate of incorporation the next day. It asked for the name of the proposed company.
The name of the company had been decided earlier, almost by default. Dr Goh had always referred to the proposed company as the “outfit” or “unit”, while the press had called it the “government investment corporation”. Civil servants had adopted the latter, but added the words “Government of Singapore” as the term connoted “respectability”. After all, international credit agencies had given Singapore an AAA credit rating, citing its large reserves and the government’s provident fiscal policies as the reasons. Taking advantage of that brand, it was decided, more or less tacitly, to call the new “outfit” the “Government of Singapore Investment Corporation Pte Ltd”. It was duly incorporated as such on 22 May 1981.
While external parties would and did use a variety of abbreviations for the company – one was GOSIC – the abbreviation used within the establishment from the beginning, and the version now accepted, was GIC.
GIC was established on the proposition that the country’s reserves should be managed by an indigenous, national entity rather than by external fund managers. Lee and Dr Goh would have it no other way. For them, leaving the management of the country’s money to others meant a “good chance that they would enrich themselves instead of the country”. However both Lee and Dr Goh knew that there was limited local expertise in fund management and that, willy-nilly, GIC would have to obtain a nucleus of experienced portfolio managers to jump start the new company.
Yong recognised that GIC would not be able to “find experienced professional managers in Singapore to satisfy its requirements” and suggested to Dr Goh that their search for talent be extended to London and New York. Dr Goh agreed and executive search firms were hired to identify suitable candidates overseas. Dr Goh and Yong then flew to London to interview the shortlisted candidates. London, however, proved fruitless. The problem was not the quality of the candidates but their generous superannuation plans: they had to give as much as six months’ notice to their current employers to avoid forfeiting those benefits.
Yong was unwilling to wait that long to get GIC started.
The next stop was New York, to which Yong went alone. Unexpectedly informing Yong that he had to return to Singapore, Dr Goh asked him to do the New York interviews himself and have them taped. Yong was then to submit a summary of his recommendations and the taped interviews to Dr Goh.
All three would arrive in Singapore by the last quarter of 1981, by which time GIC had established three investment units: Japanese equities, US equities and real estate, the last focusing on US property markets.
The three Americans proved to be exceptional mentors, evidence indeed that Yong was a good spotter of talent. They were thoroughbreds in their fields, technically competent, with a deep knowledge of their industry and a wide network of contacts. And most importantly, they were committed to developing their respective teams. The rookies under their charge received grounding in the basics of investment, a sense of the rigour required to perform due diligence, and encouragement to form their own conclusions.
The impact of each of the Americans varied. Bailey left after a year, for a variety of reasons. Salmond stayed through his three-year contract, impressing those who worked with him with his knowledge of the Japanese market and his stand that value investing was all about stock selection rather than index investing, which “was nothing more than opting for mediocrity”, he famously said. And Garhart worked for GIC until his retirement in 1989. He resisted investing in US properties up to the mid-1980s, believing that the deluge of Japanese money in the US real estate market had caused US properties to be over-valued.
The GIC pioneers who worked with Bailey, Salmond and Garhart, and who are now themselves leaders in their fields, recall their American mentors with gratitude. Among the accolades from them: the Americans were “three extraordinary individuals”, one said; “true professionals”, said another, “people from whom we learnt a lot”.
GIC achieved a great deal in the first year of its existence; in a manner that would exemplify the GIC culture that was to emerge. Yong Pung How’s unaffected but effective style of management would be the model for future GIC CEOs. That Lee Kuan Yew made it a point to interview all senior candidates signalled the attentiveness that would be given to the recruitment of high-calibre people. And the willingness to seek expertise worldwide and to learn from others would become second nature to the company.