By Conrad Tan

(SINGAPORE) The Government has shot down a suggestion to set up a 'Temasek II' government fund that invests in Singapore companies.

'Such an approach may not be the best way to nurture local companies,' said Lim Hwee Hua, Minister in the Prime Minister's Office and Second Minister for Finance and Transport, in Parliament yesterday.

'It would be neither sustainable nor appropriate for the government to step in to finance local enterprises that cannot locate private funding, since our ultimate goal is to nurture globally competitive companies.'

She was responding to earlier suggestions by MP Inderjit Singh that the government should take a more active role in investing in and growing Singapore companies.

Mr Singh had also suggested that the Government of Singapore Investment Corp (GIC) and Temasek Holdings be given more conservative mandates, since their investment performance affects Singapore's reserves.

Mrs Lim said that forcing GIC and Temasek to move to a more conservative mandate 'as a knee-jerk reaction to the recent downturn would not be prudent, as this could risk compromising the ability of GIC and Temasek to deliver long-term sustainable returns'.

But their specific investment strategies 'will evolve and adapt to structural changes in the investment environment', she added.

MP Ho Geok Choo asked for an update on GIC's investments, particularly its stake in Swiss bank UBS - which is now showing a paper loss of some 5.3 billion Swiss francs (S$6.9 billion) on the original investment of 11 billion francs, according to BT's calculations.

Mdm Ho also asked how much GIC had lost on its US$675 million investment in Stuyvesant Town and Peter Cooper Village, a giant New York apartment complex that was bought at the height of the property boom in the United States but which has since suffered from the collapse of the housing market there.

GIC had invested US$575 million in a so-called mezzanine loan backed by the property - a subordinated loan that sits between ordinary debt and equity - and US$100 million in an equity stake.

After a US court ruling that dealt the project a death blow last October, GIC wrote down its entire US$575 million debt invesment, but it is unclear if it has also written down its equity investment in the property.

Yesterday, Mrs Lim offered no further details, but said that GIC 'takes very seriously every decline in the value of its portfolio and in the value of individual investments'.

'However, it is not realistic to avoid losses on every investment as that would require GIC to be completely risk averse,' she added. Overall, both Temasek and GIC had delivered 'creditable returns' on their portfolios, she said.

This article was first published in The Business Times.