Singapore: A Singapore sovereign wealth fund that bought multi-billion dollar stakes in beleaguered banks Citigroup and UBS has said that a global financial crisis and recession was increasingly likely, but that its investments in western banks were long-term in nature.
“The financial contagion has now spread beyond U.S. shores, increasing the likelihood of a global financial crisis and recession,” Government of Singapore Investment Corp Deputy Chairman Tony Tan told a staff meeting.
“We could be facing a recession which is longer, deeper and wider than any recession we have encountered in the last 30 years.”
GIC is the larger of Singapore’s two sovereign wealth funds and bought $11 billion Swiss francs worth of mandatory convertible notes in UBS last December. In January, GIC invested $6.88 billion in Citigroup in a capital raising by the U.S. bank.
“We regard our investments in UBS and Citigroup as long term investments that will give us good returns when markets stabilise and economic conditions return to more normal levels,” he said.
GIC previously said it has not yet decided whether to participate in UBS’ subsequent $15 billion franc rights issue.
Tan said that GIC had entered the market turmoil well prepared after it had taken a more conservative stance in its investment portfolio by selling stocks in the third quarter and holding more cash.
“We are now entering a period of extreme uncertainty in the world economy and the global financial markets. As banks continue to de-leverage, cutting down on their lending activities and causing contraction in credit supply, the prospects for the U.S. economy and even the world economy are fraught with considerable downside risks,” he said.
GIC says it manages “well above $100 billion”. But analysts say the fund’s assets could be larger than $300 billion, making it one of the world’s biggest sovereign wealth funds.
Morgan Stanley said in February that GIC was the world’s third-largest sovereign wealth fund with $330 billion in assets under management, behind the Abu Dhabi Investment Authority with $875 billion and Norway’s Government Pension Fund with $380 billion.
Temasek Holdings, Singapore’s other fund, has to date invested $5 billion in Merrill Lynch.