This is an edited transcript of the keynote speech GIC CEO Lim Chow Kiat delivered for the Partners & Advisors Track at the Wealth Management Institute (WMI)’s Global-Asia Family Office (GFO) Summit 2022.

Good morning. I would like to congratulate the WMI team, especially [Foo] Mee Har and Brian [San], who worked really hard to assemble some 450 participants and more than 80 expert speakers. Many of you are from overseas, and I thank you for attending. Years later, I am sure you will be very proud to say that you attended the inaugural summit of the GFO Circle.

I am going to spend the next 10 to 15 minutes covering three brief points:

• The first is to recall WMI’s mission and growth journey.
• The second is to zoom in on the family office sector.
• Finally, I will talk a little more about the investment landscape and the roles and responsibilities of many of you who are important partners and advisers to wealth owners.

Looking back to galvanise purpose for the future

WMI was set up 19 years ago by GIC and Temasek. Next year, we will celebrate our 20-year anniversary. The mission was, in a way, very simple: to help grow the talent pipeline for the wealth management industry in Singapore.

This reputation requires continuous efforts to keep up, and WMI is committed to that. Many of you have contributed significantly to WMI’s efforts of being industry- and practice-centric: conducting classes and training numerous professionals. To date, WMI has registered more than 18,000 enrolments. Its training programme has come a long way and benefitted many: from practitioners to students, as well as those who want to switch careers into the financial sector.

I will say that this is a tremendous achievement.

But there is so much more to do. Under Mee Har, WMI has rolled out many important programmes, in the private banking and institutional asset management areas, as well as insurance and compliance. With the support of the Monetary Authority of Singapore (MAS) and the Singapore Economic Development Board (EDB), we are very much focused on growing the family office sector as well.

The challenge and opportunity for us is to make sure that this growth endures and strengthens Singapore and the region in the years to come. Singapore cannot just become a place for family offices to hold assets – we must provide the pathways for this capital to be deployed meaningfully.

With family capital as a powerful alternative source of capital, it complements institutional capital such as what we manage at GIC. With the challenges and transitions ahead, we need multiple sources of capital to create and fund innovative solutions.

Charting the evolving paths of family offices

Over the last two years, the number of single-family offices has more than tripled to over 700 in Singapore today. That is a tremendous growth which I suspect will continue. In fact, thanks to your connections, family offices in faraway places are considering to set up a presence in Singapore. This is raising the bar to make sure that the family offices operating in Singapore are of high standards and to ensure that they do not leave capital idle. It is not just leaving money in a bank deposit or buying property. That is not enough. We want the capital to be productively deployed.

This growth is in no small part due to Singapore’s foundational strengths, namely stability, trust, connectivity, and quality of life. Singapore has many of the features which are key to establishing a robust family office hub, including a stable business and political environment, a trusted legal system, a strategic location, and innovative incentives. It is also in no small part due to Singapore being a gateway to what we call “Global Asia” which is incorporated in the name of the GFO Circle. We are a gateway for the world coming to Asia, and for Asia going to the world. It is a powerful strategic advantage.

But having these foundational strengths are not enough. We must proactively build the community. All of us coming together to learn, to have new ideas and to network at this summit is an example of how we can extend the role of family offices beyond finance.

Naturally, finance plays a very important role in managing and creating more wealth. But it has to go beyond that, to support entrepreneurship, for example. The capital we deploy will help new start-ups and businesses to grow. It has to also expand to philanthropy because it is not enough to just focus on the commercial side of things. And it has to extend to sustainability because the money can go a long way to make a positive impact.

All these efforts require the building of expertise. I am sure that at the end of this summit, we will take away many good ideas. It is obvious when you pool together 450 high-powered minds, you will benefit from a network effect. All these efforts come with strong governmental support – MAS, The Institute of Banking and Finance Singapore (IBF), EDB, GIC and Temasek, as Mee Har put it, are unstintingly behind these efforts.

GIC as a family office for Singapore

Let me say a few words about another family office organisation known as GIC. We often think of GIC as a family office of, and for, Singapore. In fact, GIC has been doing business with a growing number of family offices. We co-invest together, and benefit from many parallel traits, including a long time horizon.

Our goal in GIC is of course to preserve and enhance the wealth of the country. Specifically, we want this wealth to perform three key roles:

• The first relates to acting as a rainy-day fund in case of emergencies, such as the Covid-19 pandemic.
• At the same time, we want to be a stability fund backing up our financial system and currency. The importance of having a pool of reserves backing up your financial system is now coming to the fore. Otherwise, you could be under tremendous pressure, as we are witnessing now in the current uncertain investment environment.
• We also aim to be an endowment fund. More than 10 years ago, the Singapore government devised a spending rule which allows it to draw down part of the long-term returns of the reserves. So today, this contribution makes up a significant part of the government budget that goes towards helping many families and to developing the economy.

In that sense, we share parallels with many family offices. Those which have robust governance processes would have devised clear rules for how they invest and how they use a part of their returns for the benefit of the family and for the benefit of their philanthropic efforts.

GIC is also like a second engine. Our first engine, our GDP, is significant. But a second engine – a pool of reserves that help to generate returns, while allowing us to rely on an emergency, stability and endowment fund – can also be very powerful.

Being headquartered in Singapore, GIC has also benefitted from the services of many of you here. It is good to see that we have an extensive ecosystem to tap on. And that should extend to many family offices as well. This again goes back to the idea of building up this ecosystem, including business partners and service providers.

In performing your roles well, with good technical competency, quality stewardship, and sustainable practices, you will create real value for wealth owners, industries, and society at large.

Opportunities in a challenging investment landscape

Let me conclude with a brief description of the shifts or transitions we are experiencing in the current investment landscape. Transitions involve moving from an old to a new state. We are not witnessing a change from the last 10 years going into the next decade, but a shift that will perhaps define the next 50 years versus what we experienced in the last five decades. This is a significant change. During such transitions, we often see a high level of volatility and uncertainty.

Now, as the saying goes, a lot of these changes often happen slowly and then suddenly. It is an accumulation of issues over a long period of time. We are now in the “sudden state” and are seeing large market and economic moves. Within this uncertain world, making policy is very difficult. We are already witnessing some delays and failures on the part of policymakers in the last one to two years. I am afraid that some of these accidents might continue to happen.

Now, before you despair and become bearish, I would also highlight that oftentimes in financial markets, especially for long-term investors, market sell-offs are the seeds of future recovery. Let me give two examples.

There is some restoration of value in the fixed income market. A specific example I like to cite is what is a measure of risk-free rate, the US 10-year Treasury Inflation-Protected Securities (TIPS). The real yield beginning of this year for the 10-year TIPS was -1.2%. If you had bought that bond, you would have basically guaranteed to deliver -1.2% real return for the next 10 years. It is terrible because you are depleting the purchasing power of your fund. But today, it is +1.3%. Now you can tell your clients that you can almost guarantee a minimum additional purchasing power of at least 1.3% per year for the next 10 years. If you go longer, if you plan for a 20-year time horizon, it could be higher.

That is not a whole lot of real return. But the risk is also very low. This phenomenon of higher asset yields is taking place across many asset classes. I believe we will work through all these market difficulties. In fact, for long-term investors, it is the asset yields which matter more compared to capital gains and losses because of long-term compounding.

The second possible opportunity is in the area of transition finance, to tackle climate change, for example, which is going to cost economies a lot of money, while also providing investors with many opportunities.

It is not going to be easy, because you have dilemmas and trade-offs to manage. You have three things that you are trying to achieve: affordability, security and sustainability. Typically, you can only hit two of the three. If you want affordability and security, you sacrifice sustainability. If you want affordability and sustainability, you sacrifice security. Investors have a great role to play in trying to reduce the trade-offs and minimise the downside.

Low-carbon technologies are one area that we have invested in, including green hydrogen, renewables and carbon capture and storage. The cost curves of renewables have come down a lot, so that is an area that family offices can consider participating in.

Supporting the next generation of wealth owners

Let me conclude by highlighting the roles and responsibilities of many of you – partners and advisers to wealth owners.

One hallmark of family offices is that they value advisers and partners who can bring a holistic view to their family wealth situation, beyond a single area of expertise. You may not always have all the answers, and it is imperative that you have a strong network of peers in parallel areas so that you can support each other. 

We see this as a shared objective with sovereign wealth funds which aim to achieve good long-term returns to ensure the prosperity of a nation. In today’s turbulent market environment, it is challenging  but even more important to remain astute and disciplined in allocating capital.

The second is to help asset owners create positive externalities: ESG, philanthropy, and impact. Clients, especially next-generation wealth owners, are increasingly concerned about the impact they create and the purpose they serve.

According to a PWC study which surveyed next-gen members of family businesses across 68 countries globally, 72% expect to be more focused on sustainability and impact in the future compared to only 28% today.  In my view, it should be 100% because in today’s world, given the many challenges and societal expectations we have, it would not be viable to not commit fully. You will not have the licence to operate if you do not go beyond finance; if you do not go beyond money.

Another McKinsey study found that getting to net zero by mid-century will cost an additional US$3.5 trillion more in annual spending, the equivalent of half of global corporate profits and one-quarter of total tax revenue in 2020.

In Asia, the region alone would require the equivalent of 1.7% to 2% of its GDP in decarbonisation investments, based on estimates by the Asia Investor Group on Climate Change (AIGCC).

A robust approach to sustainable investing would therefore be vital to bringing sufficient capital to and scaling innovative solutions for the low-carbon transition.

Finally, keep learning and contributing. Many of you are already contributing to WMI’s growth. Keep doing that, especially during occasions like this which allow all of us to learn, network, and contribute.

This is what we hope for the GFO Circle to achieve, which is to support each other as a community of peers, and to bring the whole ecosystem forward together.

Thank you.