The Singapore Business Federation (SBF) recently floated an ambitious proposal that would see those running the national pension fund - the Central Provident Fund (CPF) Board - investing in local shares.
SBF's rationale was that this would foster a vibrant stock market and provide funds for local firms as they build external wings overseas.
Currently, CPF money is invested in Special Singapore Government Securities, which guarantee a fixed return. To achieve that objective, the Government pools CPF monies with the rest of Singapore's reserves and manages all of those funds through GIC - which invests these vast sums overseas.
Under the CPF Investment Scheme (CPFIS), CPF members are permitted to invest some of their own CPF money in approved listed local stocks but, in the vast scheme of things, this is just a tiny fraction of their total balance, which stood at about $275 billion in 2014.
To back its case, SBF noted that in other advanced countries, local pension funds are active in their own markets. Domestic equities make up about 87 per cent of the stockholdings of Australia's pension funds, and only 30 per cent of Canada's pension funds are invested abroad.
But SBF's idea was so controversial here that it drew a wave of concern from the public.
"CPF monies must never be thought of as a means to prop up the stock prices of local companies. For SBF to have articulated this reflects rather poor judgment," wrote reader Chan Yeow Chuan.
The proposal floated by SBF is so radical that it is unlikely to find favour in the public's eye. Ordinary people here will be loath to take on any of the perceived increase in investment risks that such a move might create for their hard-earned pension nest egg.
As the saying goes, Rome was not built in a day, so any progress in this area will have to be incremental, rather than the sort of seismic change envisaged by SBF.
One such incremental change worth looking at could be allowing retail investors to use their CPF monies to invest in Catalist-listed companies.
Conceived eight years ago as the world was in the throes of a financial firestorm, Catalist - the junior board established by the Singapore Exchange (SGX) - has grown from strength to strength.
Just three months ago, it welcomed its 100th listing. Add four new listings that it has attracted since then, and the total number of companies traded on Catalist comes to 175, with a combined market capitalisation of more than $10 billion.
It is also growing in popularity as a listing destination: Last year, the mainboard had only one IPO, while Catalist had 12 new listings.
Moreover, there is a large number of local firms making a beeline for Catalist. Nine of the 12 IPOs there last year and all of the three new listings there this year were by Singapore- incorporated companies.
In its early years, Catalist was regarded as a cheery port of call for start-ups as it drew in plenty of small firms - those making less than $10 million in pre-tax profit a year and without much of a track record.
But in the past three years, Catalist has also attracted a number of well-run local firms with familiar names that an HDB heartlander would probably feel comfortable sinking his retirement nest egg into.
Unlike the earlier cohort of Catalist listings, such firms have well-established track records and a consistent run in terms of profitability. They also boast sterling managements that Singapore Inc would be proud of.
One example would be seafood restaurant operator Jumbo Group. Its IPO last year was a star performer and the price has jumped 72 per cent from the issue price at the listing debut in November.
Jumbo has been around for more than 30 years, reporting a net attributable profit of $11.52 million for the financial year ended September 2014. It has also promised to pay out at least 30 per cent of its earnings for the financial years ending this year and next.
Jumbo displays the attributes of a promising local enterprise that is making good. But a retail investor who wants to use his CPF monies to invest in Jumbo shares will find that he is unable to do so. This is because the counter is not a CPF trustee stock and, as long as it stays on Catalist, that prohibition will remain in place.
A CPF Board spokesman told The Straits Times: "Currently, only shares that are listed on the SGX mainboard can be included under CPFIS. Shares listed on Catalist are not allowed under CPFIS. The board has no plans to include Catalist shares under CPFIS at this juncture."
The CPF Board had previously allowed its members to invest in firms listed on Sesdaq, Catalist's predecessor. When Catalist was established in 2008, it extended this arrangement to Sesdaq-listed firms that crossed over to Catalist if their counters had already qualified as CPF trustee stocks.
But it decided to adopt a wait-and-see attitude towards freshly listed Catalist firms, arguing, among other things, that such companies are "more likely to be in their earlier stages of development, with limited track records". And there the issue has languished.
Now, this would not have mattered if not for another change - the SGX raising the bar for new mainboard listings. This makes it difficult for local enterprises holding great promise such as Jumbo to vault over the hurdle.
Previously, a firm would have qualified for a mainboard listing if it had made a pre-tax profit of at least $7.5 million in the previous three years, with at least $1 million earned in each of those three years, or a cumulative pre-tax profit of at least $10 million in the previous one or two years. Alternatively, the firm should have a market value of $80 million or more on listing.
But four years ago, SGX decided to up the ante for mainboard listings, requiring a company to have a pre-tax profit of at least $30 million, or a market value of at least $150 million if it was profitable in the last financial year.
As a result, even well-established firms such as Jumbo, which would have qualified comfortably for a mainboard flotation under the old listing criteria, find that they have to settle for a Catalist listing.
Of course, the likelihood of them getting upgraded to a mainboard listing is high. Seventeen have done so since Catalist's inception.
But it does seem a pity that, just because they are labelled as "Catalist" rather than "mainboard" listings, CPF investors should be denied an opportunity to invest in them. After all, they might not carry an investment risk that is appreciably higher than that of their mainboard brethren.
Could the CPF Board consider allowing CPF monies to be used to invest in Catalist-listed firms on a case-by-case basis? It is one issue that SGX and SBF might want to take up with the board.
A small step forward in this direction could well prove one day to be a giant step forward in changing mindsets about how pension funds can be utilised to usher in a more vibrant stock market for the benefit of all.
This article was first published on February 22, 2016.
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