Singapore's biggest sovereign wealth fund said this morning a global recession was increasingly likely but defended its multi-billion dollar bets on Citigroup and UBS as providing good long-term returns.
Sovereign wealth funds globally have poured billions of dollars into major US banks reeling from writedowns linked to US subprime mortgages, which have sparked a global credit crisis.
The Government of Singapore Investment Corp (GIC), which analysts estimate could manage as much as $300 billion, said the financial turmoil would leave markets extremely volatile over the next one to two years.
"The financial contagion has now spread beyond US shores, increasing the likelihood of a global financial crisis and recession," Deputy Chairman Tony Tan said at GIC's inaugural staff conference today.
"We could be facing a recession which is longer, deeper and wider than any recession we have encountered in the last 30 years," he said.
Mr Tan made his comments at a staff conference to which the media had been invited. But, GIC declined to answer media queries.
The corporation, which says on its website that it manages "well above $100 billion", rarely communicates with the media but has made efforts in recent months to be more responsive.
GIC invested 11 billion Swiss francs ($11 billion) in mandatory convertible notes in UBS last December after the Swiss bank sought capital following losses related to the US subprime mortgage market.
In January, it invested $6.88 billion in Citigroup. Stocks in both banks have slid this year.
"We regard our investments in UBS and Citigroup as long-term investments which will give us good returns when markets stabilise and economic conditions return to more normal levels," Mr Tan said.
GIC has said previously it had not yet decided whether to participate in UBS' subsequent 15 billion franc rights issue.