GIC revamps external manager process

It has established a new department designed to maximize benefits from external investment mandates.

Singapore's Government Investment Corporation (GIC) has begun to reorganize the process by which it monitors, screens and selects external fund managers. The institution has created a new 'external fund management department' that consolidates work previously spread among other, lower-ranked divisions. The upgrade to departmental status within the bureaucracy means more resources and highlights the importance the GIC places on extracting value from external money managers.

The GIC says it manages over $100 billion in assets, and that its external outsourcing program totals S$26 billion ($15 billion), making it probably the biggest single client in Asia ex-Japan for fund houses.

The new department will be run by Wee Sau-Ling. She has always overseen GIC's external mandates, previously as head of the corporate affairs and planning unit from which the department has been created. She also ran corporate affairs and planning's predecessor, the investor services unit. She didn't respond to requests for an interview.

Until now, the GIC spread responsibility for external balanced, fixed income and equity fund managers among three departments. Although this was meant to promote specialization, and the corporate planning office monitored the entire process, communication snafus were inevitable. Moreover, the people charged with these various mandates lacked portfolio management experience.

The new department will centralize these functions, and it is now being staffed internally by former portfolio managers. External fund managers who work for GIC say this reorganization has only begun and expect more transfers. These sources say, however, that the new department has already begun taking inventory of its existing managers and their track record.

"The GIC will look at how managers fit into its overall plan," says one external fund executive. "They're looking not just at our alpha, but at diversification and our correlation to other fund managers, as well as comparing us to their internal managers." He reckons even external managers with good performance could lose mandates if they correlate too closely with others in GIC's portfolio; or, vice versa, managers with relatively ho-hum returns may find a mandate if they help the client diversify sensibly.

Another fund house exec believes the changes are designed to improve GIC's market skills. To work for the GIC usually involves not just good fund management delivery, but technology transfer and training. Fund houses provide a variety of models, and the GIC wants to learn from all of them in order to achieve global best practices.

By creating a well-supported department staffed with investment professionals, the GIC can learn even more from its external managers, says this source.

Fund managers doubt this sophistication will rub off on other organizations, however, as GIC's objectives and governance structure as the investment arm of the Singaporean government is unique. "The GIC does things in a first-class way," says one of its managers.