February 17, 2009
A) The link to suggest that investing in equities and PE would generate continual stream of income is weak at best. Investment in equities is by and large a capital appreciation game. PE — as an income source?? Low liquidity, lumpy returns profile… there is definitely no steady income stream to speak off!
B) Now, to say that investing in equities was a bid to beat inflation (which is indeed GIC’s objective) is more reasonable. However, post Volcker (US inflation has been steadily low) and likewise global inflation post 1994 has been going down steadily. Here is a research report from RBS, re Global Inflation addressing this issue.
C) What’s more likely, is that the dive into Equity and PE heavy asset allocation was a result of managers at GIC following the successful formula set by David Swensen and the Yale Endowment Model. Unfortunately, this financial crisis has not spared him as well — read his defence here.
Recommended by Anonymous Coward: "Astute observations on MOF's statements regarding their portfolio losses"