Singapore treads carefully | FT

......The Government of Singapore Investment Corporation (GIC), which manages more than S$100bn (US$59.8bn) in foreign reserves, believes etiquette is an important part of its hedge fund investment strategy.

In fact, by investing in fund of hedge funds, the GIC claims to have honed its ability to "gently let down" fund managers that have failed to impress during a gruelling due diligence process.

......its hedge fund portfolio, which has been built up over the past two years. At the beginning, the fund chose to invest through fund of hedge funds, which offered instant diversification and a chance to brush up the "soft skills".......

In addition, fund of funds were seen as a hedge against "reputational risk". "We weren't quite sure how politically acceptable hedge fund investments were in this region," said Mr Lim.

The GIC, which has placed only "a small percentage" of its total assets with external managers, has started to invest directly in hedge funds, most of which are still run in-house.

"We take a long-term view of the managers and their strategies," said Mr Lim, pointing to the GIC's "value" approach to hedge fund investing.......

"The role of developing the local hedge fund industry has been taken over by Temasek in an unofficial way," says one industry expert who declined to be named.

Those funds that manage to impress during the GIC's due diligence process are slotted into two big portfolios - one global and one Asia-focused portfolio.

"We have walked away from investing in some of the more well-known and established managers, because we have not been entirely satisfied with the operational issues," said Mr Lim.

A case in point is Long-Term Capital Management, which nearly collapsed in 1998, plunging the hedge fund industry into crisis.

"We had known John Meriwether [LTCM's founder] and his team from his days at Salomon Brothers," said Mr Lim.

"But, contrary to what is believed in some quarters, the GIC never invested in LTCM, despite being invited to do so."......

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