The GIC exodus

Nemo made a comment in my post about Temasek that there are a lot of GIC people leaving, and I wanted to cover it in a little more detail than a simple reply.

First the GIC and Temasek are completely different institutions and can be seen as almost competing entities, trying to prove themselves to ruling power structure. Some of the decisions they make are to impress party elders and for the personal political goals of their managers rather than pure economic sense.

The GIC is far more cerebral and professional. They have been hiring foreigners into their ranks for ages, paying them fairly well, promoting them based on merit. They’re essentially a large multi-strategy hedge fund, very professionally run. The key man behind the GIC is former Deputy Prime Minister Tony Tan, who is currently the Executive Director. He is a very sharp character, and has LKY’s deep respect if not affection. TT has been willing to take on the government whenever he feels it’s in the wrong, a rarity in Singapore.

Temasek is a keiretsu. It’s was formed as the holding company for state assets and current portfolio still includes majority stakes in Singtel, Singapore Air etc. To a large extent its was merely a warehouse cum overseer for state assets till Ho Ching took over. She wanted to remake it into her own personal private equity firm. Unfortunately she was stuck with a group of staff who were all former employees of all these companies like Singtel and had joined the parent. So Temasek, though it is trying to change, is largely composed of Singaporeans. The other issue is that even though Temasek is technically the major shareholder of all these firms, they can’t exercise effective control over them. If Temasek tells Singtel to do something, the head of Singtel lobbies the government directly on what he wants to do. This was what forced Charles Goodyear, the BHP CEO who was brought in to take over from Ho Ching, out. He came in and actually wanted to take firm control of the assets on the balance sheet, something which Temasek simply couldn’t tolerate.

So running Temasek is like trying to run an international PE firm making investments in emerging markets, while your staff are largely a bunch of bureaucrats with state owned enterprise experience with little international experience, and about half your balance sheet is forever frozen and beyond your control.

What’s happened in the last 2-3 years, is that Temasek and the GIC have started to converge. The UBS equity infusion deal was done by GIC because one of the senior managers wanted to show that “Temasek isn’t the only one who can do big deals”. The financial services equities team were overridden by senior management, and were told to justify the deal. Meanwhile, Temasek has been in a real push to change the DNA of the organization from the entry level up, ever since the Thaksin deal, hiring foreigners and foreign trained Singaporeans, trying to become more institutional and less idiosyncratic in decision making.

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Why is there currently an exodus of people from the GIC? It’s largely a result of a couple of things.

Firstly, there is a huge pay differential between an international multi-strat and the GIC. Enormous. So as the financial services and private wealth markets develop in Asia, guys at the GIC are finding that they can just tap a few rich families, raise a hundred mill, and do their own thing. The stars at the GIC, who are promised that someday they will lead the organization, watch as less talented peers leave the organization and make multiples of what they make. The pay differential was fine when the GIC was the only game in town for Singaporean and Asian finance guys who couldn’t tap Western institutional investors, but that time has now passed.

Secondly, the guys at the GIC are some of the few people with extensive Asian investment experience, dating back 10-20 years, who are still available in the market. Everyone else who has that much experience is either dead, retired, or running their own thing.  So they are very much in demand.

So the environment for these guys to get some family money to run is very conducive. And so more and more of them are leaving after gaining the necessary experience.