Singapore's GIC says Citi, UBS Investments Unique

Singapore's biggest sovereign wealth fund said on Wednesday its large investments in banks Citigroup and UBS are unique at a time of financial turmoil and did not represent a strategy shift.

The Government of Singapore Investment, which has historically kept a low profile unlike sister fund Temasek Holdings, on Tuesday purchased $6.88 billion worth of Citigroup convertible stock after the U.S. lender wrote off $18.1 billion for losses tied to subprime home loans and risky debt.

"There is no change in GIC's investment strategy," GIC spokeswoman Jennifer Lewis told Reuters. "GIC's preferred practice in respect of our public equity investments is to take relatively small stakes in companies, for portfolio diversification."

But the investment in Citigroup came just one month after GIC's $9.75 billion injection into UBS, which also took a beating from the U.S. mortgage meltdown, leading some analysts to speculate Singapore sovereign funds could seek further chunks of big name Western banks.

"If you are prepared to take a longer view, why not? This kind of opportunity doesn't knock every day," said Song Seng Wun, Singapore-based head of research at Malaysian investment bank CIMB.

GIC's Lewis said the fund's investments in UBS and Citigroup differed from normal practice and that the current financial situation in the U.S. and Europe was "unique and unprecedented."

"A confluence of factors, like the sub-prime crisis, the credit squeeze, and a possibility of recession, has led some banks with strong franchises, to require urgent capital infusions," she said.

GIC's purchases, along with similar investments in U.S. and European banks by sovereign wealth funds from Asia and the Middle East, attest to the growing clout of state investors in global financial markets, particularly at a time when many Western lenders are reeling from losses.

"Asian sovereign wealth funds want to invest in global financial institutions because they believe that the price is attractive, and they believe it is a significant component of asset allocation," said Peter Redward, Barclays head of rates research for emerging Asia.

GIC, which invests Singapore's foreign exchange reserves, says it manages well over $100 billion, though many observers believe it controls assets in excess of $200 billion.

An October report by Standard Chartered Bank and Oxford Analytica described GIC as the world's third largest sovereign wealth fund with $215 billion in assets under management.

Temasek, which manages government surpluses and holds stakes in many Singapore firms, was ranked seventh with assets of $108 billion. Temasek in December agreed to invest up to $5 billion in Merrill Lynch, and also owns large stakes in Standard Chartered, Barclays and Singapore's DBS Group.

Prior to GIC's investment in Citigroup, observers had expressed doubts whether the Singapore investor would buy a large stake in a U.S. bank because of risk management issues such as a possible breach of the fund's sector exposure limit.

GIC's Lewis said, however, the investments in Citigroup and UBS had been "structured with appropriate downside protection, and are within the GIC's risk management parameters."