Lim Chow Kiat: How GIC invests

The content below is an excerpt from an article written by Lim Chow Kiat (left), group chief investment officer of the Government Investment Corporation (GIC), Singapore's sovereign wealth fund which manages more than US$100 billion of the country’s reserves.

The full article was originally published at the website  of the Focusing Capital on the Long Term initiative.

Originally from Johor, Malaysia, Mr Lim, 44, has worked at GIC all his life, having joined GIC in 1993 after graduating with a Bachelor of Accountancy degree (first class honours) from Nanyang Technological University. He was appointed to his current post in Feb 2013.

OVER THE YEARS, we have learnt that it is actually not the time horizon that matters most, but rather the mindset and discipline to consistently invest based on fundamentals and valuations. 

In particular, it is important to have the ability to assess value and maintain price discipline in the face of market fluctuations and uncertainty.

Having a long time horizon enhances this ability, especially in a world full of short-term investors. Professional investors like to bank on skill rather than luck. At GIC, we add long-termism to our formula.

At the heart of GIC's investment philosophy is our value discipline. We look for the compounding of fundamental value and opportunities in price-value divergence. 

Both require a long-term orientation. We are also mindful that long-term investing does not oblige us to buy and hold for long periods. The holding period depends more on price and value than time.

At the same time, while we obviously prefer market prices to move up quickly to reflect our assessed valuations, we are prepared to wait longer for the convergence than most investors.

Translating this philosophy into practice requires constant, concerted effort. We start with an articulation of our investment principles, which we vigorously promote through multiple channels and constantly assess to make sure they drive our decision processes.

Our investing principles are:

• Pursue intrinsic value and maintain price discipline

• Practise long-term investing

• Pick our spots: Be focused and leverage our strengths

• Pay attention to risk control

• Prepare for the future.

It is critical to create an investment process that holds us to a value discipline, which includes assessment rigour, a target buy list, premortem analysis, rebalancing, and monitoring of portfolio turnover, among other measures.

Having the mindset to look beyond marked-to-market prices and instead at fundamental developments in the assets has proved useful for this purpose. In equities, for example, it is critical to look beyond stock prices to actual business performance.

When done well, this is a source of competitive advantage, given how rarely investors take such a disciplined approach. In recent years, we have also extended the advantage into the area of providing bespoke capital for investees. Our long-term and flexible capital has added to our opportunity set.

One of the most difficult investment decisions to make is one that forces you to stand apart from the crowd. In fact, the largest investment losses tend to arise from procyclical decisions.

"Marked to peers" can be a powerful (and damaging) psychological driver of such flawed decision-making. As the veteran investor Howard Marks puts it, "looking wrong" can destroy careers in most organisations.

Yet the ability to make those difficult decisions is an important part of successful investing. That is why a clear articulation of a value discipline and long-term orientation is so important.