SINGAPORE’S SOVEREIGN WEALTH FUNDS: GIC AND TEMASEK

GIC AND TEMASEK

Singapore has two sovereign wealth fund with billion of dollars of assets: 1) Government of Singapore Investment Corporation (GIC), with around $247.5 billion, founded in 1981; and 2) Temasek Holdings, with assets of $157.5 billion, founded in 1974. [Source: Wikipedia +]

A sovereign wealth fund (SWF) is a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals, or other financial instruments. Sovereign wealth funds invest globally. Most SWFs are funded by foreign exchange assets. Some sovereign wealth funds may be held by a central bank, which accumulates the funds in the course of its management of a nation's banking system; this type of fund is usually of major economic and fiscal importance. Other sovereign wealth funds are simply the state savings that are invested by various entities for the purposes of investment return, and that may not have a significant role in fiscal management. +

The accumulated funds may have their origin in, or may represent, foreign currency deposits, gold, special drawing rights (SDRs) and International Monetary Fund (IMF) reserve positions held by central banks and monetary authorities, along with other national assets such as pension investments, oil funds, or other industrial and financial holdings. These are assets of the sovereign nations that are typically held in domestic and different reserve currencies (such as the dollar, euro, pound, and yen). Such investment management entities may be set up as official investment companies, state pension funds, or sovereign oil funds, among others. +

There have been attempts to distinguish funds held by sovereign entities from foreign-exchange reserves held by central banks. Sovereign wealth funds can be characterized as maximizing long-term return, with foreign exchange reserves serving short-term "currency stabilization", and liquidity management. Many central banks in recent years possess reserves massively in excess of needs for liquidity or foreign exchange management. Moreover it is widely believed most have diversified hugely into assets other than short-term, highly liquid monetary ones, though almost no data is publicly available to back up this assertion. Some central banks have even begun buying equities, or derivatives of differing ilk (even if fairly safe ones, like overnight interest rate swaps). +

Government of Singapore Investment Corporation (GIC)

Government of Singapore Investment Corporation (GIC) founded in 1981 to manage Singapore’s growing foreign reserves. The second largest sovereign wealth in the world after the one in Abu Dhabi, it was incorporated under the Singapore Companies Act and is wholly owned by the Government of Singapore. It has offices in 9 cities worldwide and are headquartered in Singapore. GIC has an estimated worth of $247.5 billion and achieved a return of 9.5 percent between 1982 and 2007. As of 2011, GIC held around 42 percent of its portfolio in North and South America, 28 percent in Europe and 27 percent in Asia. As of the late 2000s GIC chaired by Lee Kuan Yew, the former Singapore prime minister.

The GIC website says: “Our aim is to achieve good long-term returns for the Government - a reasonable risk-adjusted rate above global inflation over a 20-year investment horizon. By achieving these returns, we fulfil our responsibility to preserve and enhance Singapore's foreign reserves. The reserves provide a stream of income that can be spent or invested for the benefit of present and future generations. We do not own the funds we manage. We manage these funds on behalf of the Government of Singapore, our client. [Source: GIC website ^|^]

GIC is one of the largest investment management organizations in the world, with over 1000 people, investing well over US$100 billion in multiple asset classes in more than 40 countries. It has almost 30 years of experience in publicly traded investments in more than 45 exchange traded and over–the-counter markets dealing with stocks, futures and options, fixed income, natural resources, foreign exchange, cash and derivatives. GIC’s real estate portfolio is one of the few that is truly global. We are ranked among the world's top 10 real estate investment firms in terms of assets under management. ^|^

GIC’s private equity portfolio has placed us as one of the leading global private equity investors in the world with a network of over 100 active fund managers that are among the best in the world. GIC is one of the key architects of the Santiago Principles, a set of Generally Accepted Principles and Practices for Sovereign Wealth Funds. The Principles were published in 2008 by the International Working Group of Sovereign Wealth Funds (IWG), made up of 23 member countries including Singapore. GIC adheres to and practises the spirit of the Principles. ^|^

According to the GIC website: “In keeping with our prudent approach to investing with a long-term horizon, we make identifying and managing risk a clear and integral part of management responsibility at all levels. We have established a framework that sets the accountability and responsibility for risk-taking to ensure we maximise our client's returns. Our investment strategy is one of integrated diversity. There are new and unique investment opportunities which call for GIC to operate as one integrated organization while at the same time fully exploiting the range of asset class expertise and experience in-house for best investment results. We respond quickly to investment opportunities around the world with our specialists who are on the ground at our various offices, getting a good pulse of the markets. ^|^

GIC is one of a few global firms with the highest corporate credit ratings by both Standard & Poor's and Moody's, of AAA and Aaa respectively. Its investment portfolio is managed by its three subsidiaries: GIC Asset Management Pte Ltd (public markets), GIC Real Estate Pte Ltd and GIC Special Investments Pte Ltd (private-equity investments). In 2008, The Economist reported that Morgan Stanley had estimated the fund's assets at US$330 billion, making it the world's third largest sovereign wealth fund. In addition to GIC, the Government of Singapore owns another sovereign wealth fund, Temasek Holdings, which manages about US$142 billion of assets. [Source: Wikipedia +]

GIC Investments and Performance

Traditionally, GIC has kept a low profile in its investments, for a long time saying only it managed assets of “more than $100 billion. During the subprime mortgage crisis of 2007-2010, however, a number of its investments attracted controversy. In 2006, at the height of the US real estate bubble, it made a US$200 million investment in the equity of Stuyvesant Town—Peter Cooper Village, the largest apartment complex in Manhattan (as well as US$575 million in secondary loans). The management of the complex, Tishman Speyer Properties and BlackRock Realty, defaulted on their loan in 2010, effectively wiping out the investment. [Source: Wikipedia +]

In late 2007, during the first phase of the crisis, GIC invested $11 billion Swiss francs for a 7.9 percent stake in the Swiss bank UBS. The loans were converted into equity in 2010, with an estimated 70 percent loss of value, though partially offset by a 9 percent fixed coupon. GIC had acknowledged that the timing for the investment could have been better. It also stated that other investments made at that time have had positive returns which offset the losses on UBS. GIC's total portfolio has fully recovered to its value prior to the global financial crisis. In 2008, GIC invested US$6.88bn for a 9 percent stake in Citigroup. In 2009, it pared its stake to less than 5 percent, realizing a $1.6 billion profit, with another $1.6 billion paper profit on its remaining holding. +

GIC does not disclose the amount of funds it manages and its annual profit and loss. Revealing the exact amount would expose the full size of Singapore's financial reserves and make it easier for speculators to attack the Singapore dollar during periods of vulnerability. At year end March 2011, the 20-year annualised real rate of return, in excess of global inflation, was 3.9 percent. The 20-year nominal annualised rate of return was 7.2 percent in US dollar terms. +

In September 2008, GIC said in its first ever annual performance report said it achieved a real return of 4.5 percent and an average annual nominal return of 7.8 percent in U.S. dollar terms in the 20-year period that ended March 2008. The GIC report also said 34 percent of its portfolio was invested in the United States, another 35 percent in Europe and 23 percent in Asia. The Americas and Australasia accounted for the remainder. The state investor said 44 percent of its portfolio was in listed shares, 26 percent in fixed income and 23 in alternative investments such as real estate and hedge funds. The fund also held 7 percent of its portfolio in cash as of end-March 2008, it said in the report. [Source: Reuters, September 23, 2008]

Starting 2011, GIC also published the 5-year and 10-year nominal rates of return to provide a sense of the on-going medium-term investment performance, even while GIC maintains its sights on the long term. It included two composite portfolios and volatility statistics to reflect the level of portfolio risk and to offer perspective in reading the 5-year and 10-year figures. The 5-year annualised return in USD terms was 6.3 percent net of fees with a volatility of 12 percent, while the 10-year annualised return was 7.4 percent with volatility 10 percent. These compare against a 5-year annualised return of 5.3 percent and 4.9 percent before fees for the two composite portfolios, which also had higher volatilities of 13.4 percent and 15 percent respectively. For the 10-year annualised return, the figures were 6.5 percent and 6.3 percent for the two composite portfolios with volatilities of 11.2 percent and 12.6 percent respectively. +

GIC Policy Decisions

According to the GIC website: “Our Board of Directors decides on a policy portfolio which specifies the allocation of funds to eligible asset classes. The policy portfolio is based on our client's time horizon of 20 years and risk tolerance. It is kept under review but is not changed frequently. Our investment professionals are responsible for implementing the portfolios and translating asset class allocations into actual investments. Our investment decisions are based on careful analysis of fundamentals in line with our underlying emphasis of long-term sustainable performance. Over the years we have built up a strong information network and relationships with companies that provide invaluable insights, leading to sound and profitable investments. ^|^

The funds managed by GIC are owned by the Singapore Government. Its investment returns supplement the country’s annual budget in areas such as education, R&D, health care and physical environment. As a Fifth Schedule company under the Singapore Constitution, GIC is accountable in various key areas to the President of Singapore who is empowered under the constitution to obtain information to enable him to safeguard the country's reserves. The Auditor-General, who is appointed by the President of Singapore, submits an annual report to the President and Parliament on his audit of the Government and other bodies managing public funds. [Source: Wikipedia +

GIC manages risk by investing in a well-diversified portfolio, with a balanced distribution of asset classes and their underlying business sectors and geographies. This, too, is why GIC's performance has to be measured on the basis of its overall portfolio rather than by how much it makes or loses on individual investments. Its approach to “risk management” has three distinct components: portfolio risk; process risk and people risk.

In 2008, Reuters reported: “GIC has recently been active along with other highly-secretive sovereign wealth funds in Asia and the Middle East in buying stakes in Western banks such as Citigroup and UBS (UBSN. Traditionally GIC, which manages the central bank's reserves and operates like an institutional fund, only buys minority stakes in companies and avoids taking controlling stakes, unlike its sister fund Temasek Holdings. [Source: Reuters, September 23, 2008]

GIC Makes $1.6 Billion from the Sale of Its Citigroup Stock

In September 2009, GIC made a $1.6 billion profit after selling half of the 9 percent stake in Citigroup it acquired during US-government led refinancing of the troubled bank. Kevin Brown of the Financial Times wrote: “The Government of Singapore Investment Corporation said that the sale followed the conversion of its $6.8 billion of convertible preferred stock for Citigroup common stock at $3.25 a share. Ng Kok Song, GIC’s chief investment officer, said the fund also held an unrealised gain of $1.6 billion , giving it a total profit of $3.2 billion on its participation in the rescue, which was announced in February. [Source: Kevin Brown, Financial Times, September 22, 2009]

“A stake below 5 percent reflects GIC’s goals and desire to be a portfolio investor,” GIC said. “GIC will continue its investment in Citigroup as we are confident of its long-term prospects.” GIC invested a total of $18 billion in Citigroup and UBS, the Swiss bank, when the duo sought financing in the wake of writedowns on sub-prime mortgages. Shares in both banks fell heavily in subsequent months, prompting criticisms of GIC’s investment timing. The fund also has a holding of about 6 percent in UBS, the Swiss bank. Lee Kuan Yew, the former Singapore prime minister who chairs GIC, said in April 2008 that the fund planned to retain holdings in big western financial institutions such as Citigroup and UBS for up to 30 years.

GIC’s profitable disposal of part of its holding in Citigroup contrasts sharply with significant losses incurred on sales of stakes in western financial groups by Temasek, the Singaporean state investment company that invests returns from state-owned assets.Temasek was estimated by analysts to have incurred a loss of between $2.3bn and $4.6bn on the sale of a 3.8 percent holding in Bank of America, which attracted unusual public criticism in Singapore.

GIC Faces Losses of $7.4 Billion as UBS Stocks Plummet

In 2007, GIC had a $9.2 billion stake in the Swiss bank UBS. In 2011 when UBS stock plummeted in part because of financial scandals and unwise investment, GIC faces losses of $7.4 billion if it sold the stock was when it bottomed out. Netty Ismail wrote of Bloomberg wrote: GIC faces a 6.7 billion Swiss franc ($7.4 billion) loss as the biggest investor of UBS AG (UBSN), topping unprofitable banking investments by the city’s sovereign wealth firms since 2007. GIC also has about $500 million of unrealized losses on its Citigroup Inc. (C) stake, according to Bloomberg calculations. UBS shares declined to the lowest level in two-and-a-half years after the Zurich-based bank announced a $2.3 billion unauthorized trading loss that led to the resignation of its chief executive officer on Sept. 24. [Source: Netty Ismail, Bloomberg, September 26, 2011 /=\]

“The sovereign wealth funds’ investments in international financial firms have not panned out as well as they hoped,” said Melvyn Teo, professor of finance at Singapore Management University. “Whether GIC should continue to hold on to UBS, it really depends on going forward how will the management deal with all the current problems.” The Singapore firms, ranked among the world’s 10 largest sovereign wealth investors, have since poured more money into higher-growth emerging economies and other industries. /=\

GIC “expressed disappointment and concern about the lapses and urged UBS to take firm action to restore confidence,” the bank said in a Sept. 20 statement after its senior management met in Singapore with Oswald Gruebel, who quit four days later as CEO of UBS. GIC owned about 6.4 percent of UBS as of December 2010. It became the bank’s largest shareholder when it converted 11 billion francs of notes into stock. The shares traded at about a fifth of the conversion price at the close on Sept. 23, though the 8.7 billion franc unrealized loss is partly offset by 2 billion francs in interest payments in the first two years of its investment. /=\

“The fund also owns about 3.8 percent of New York-based Citigroup, the third-largest U.S. bank, after selling half of its original stake for a $1.6 billion profit two years ago. It’s the lender’s single-biggest investor, while 18 funds managed by State Street Corp. hold a combined 4.1 percent, according to data compiled by Bloomberg. /=\

“GIC plans to hold on to the banking stakes for “many years” and will only consider selling if there are attractive offers, Tony Tan, the fund’s former deputy chairman, said in January. Tan was sworn in as Singapore’s seventh president on September 2011. “GIC should be able to, as long-term investors, take short-term hits,” said Victoria Barbary, senior analyst at the Monitor Group in London. “That’s why they’re useful capital for companies. Just because they’re holding paper losses doesn’t mean they’re ever going to be realized; they’re not going to be forced to sell them.” /=\

GIC said in its annual report in July that it boosted investments in emerging economies to tap higher returns, and cut back in Europe and the U.S. Emerging-market stocks made up 15 percent of its holdings from 10 percent a year earlier, while those in developed economies fell to 34 percent from 41 percent, it said. /=\

“The losses prompted calls for more transparency, and GIC said on Sept. 19 in response to a Today newspaper reader that “the timing for the investment could have been better.” The opposition Workers’ Party proposed this year that GIC’s annual reports should reflect its yearly performance. “This will increase transparency and accountability to Singaporeans, who are the ultimate stakeholders and beneficiaries of the investments,” Chen Show-Mao, an opposition member of Parliament said in an e-mail on Sept. 23. Chen quit as the head of New York law firm Davis Polk & Wardwell LLP’s Beijing office in July after winning a seat in the May elections. /=\

Temasek

Temasek Holding Company is Singapore’s domestic investment arm. Founded in 1974, it was initially focused at home and still owns stakes in nearly all of Singapore’s largest companies, including Singapore Airlines, the Development Bank of Singapore, Singapore Telecommunications, the power industry, the port, the shipyard. It remains biggest shareholder of six of the 10 biggest Singapore companies by market value. It owns shares of the island’s biggest bank and its largest telephone company. From 2002 to 2009, Prime Minister Lee Hsien Loong’s wife, Ho Ching, was the senior executive at Temasek. Temasek means “sea town” in Malay. In 2012, Temasek was ranked ninth among sovereign investors by the SWF Institute, trailing behind funds including those in the United Arab Emirates, Norway and China.

Temasek is an investment company based in Singapore fully owned by Singapore's Ministry of Finance. Supported by 11 affiliates and offices in Asia and Latin America, it came into existence after the Singaporean government bought stakes in several businesses and these stakes were consolidated by the Finance Ministry into what is now known as Temasek. As of 2001, Temasek owned more than 30 companies with assets of over $30 billion or about 15 percent of Singapore’s total assets. In 2007 it was worth $108 billion. Today it has listed assets of $157.5 billion mainly in Singapore, Asia and growth markets.

Temasek's investment themes centre on Transforming Economies, Growing Middle Income Populations, Deepening Comparative Advantages and Emerging Champions. Its portfolio covers a broad spectrum of industries: financial services; telecommunications, media and technology; transportation and industrials; consumer and real estate; energy and resources; and life sciences. Total shareholder return for Temasek since its inception in 1974 has been a healthy 17 percent compounded annually. Temasek has been assigned an overall corporate credit rating of “Aaa” by Moody’s and “AAA” by Standard & Poor’s. [Source: Temasek website <|>]

According to Temasek’s website: As a long term investor, we have a stake in the lives and well-being of our community. We recognise that social, environmental and governance factors can impact them as well as the long term sustainability of companies and businesses. We practise our commitment as a responsible corporate citizen and steward by supporting efforts that build people and communities through education, healthcare and research; build bridges between peoples through deeper understanding and friendship; build better governance through a culture of integrity and excellence; and rebuild lives and livelihoods devastated by major natural disasters. Since inception, we have committed over S$1 billion for community, philanthropic and public good causes. Of this, S$500 million was endowed to the Temasek Trust in May 2007 for Temasek Foundation, and another S$100 million in 2009 for Temasek Cares. The Temasek Trust independently oversees the financial management of endowments and gifts.” <|>

We are guided by our Temasek Charter, a living document that espouses who we are, and what we do as an active investor and shareholder. The Temasek Charter: Temasek is an active investor and shareholder. We deliver sustainable value over the long term. Temasek is a forward looking institution. We act with integrity and are committed to the pursuit of excellence. Temasek is a trusted steward. We strive for the advancement of our communities across generations. <|>

Portfolio Performance For the financial year ended 31 March 2012, our one-year Total Shareholder Return was 1.50 percent. Total Shareholder Return (TSR) measures returns to our shareholder as if it held our portfolio directly. This includes dividends to our shareholder and excludes capital injections from our shareholder. Our three-year and 10-year TSRs were 15 percent and 10 percent respectively, while our 20-year and 30-year TSRs were 15 percent and 15 percent respectively. TSR since inception remained a healthy 17 percent.

Temasek’s Investments

Temasek's financial year ends in March and reports are usually made in July–August. To satisfy legal requirements in issuing bonds to raise money from the public, Temasek reported its accounts to the public for the first time in its 30-year history on 12 October 2004. Net profit was S$7.4 billion US$4.4 billion) on revenues of S$56.5 billion for the financial year closing on March 2004. Its 2003 profit was S$241 million on revenues of S$49.65 billion in the previous financial year, while its 2002 profit was S$4.92 billion on revenues of S$42.56 billion.

As of 2012, about 30 percent of Temasek’s holdings were in Singapore, 42 percent are in Asia excluding Singapore and 28 percent are outside Asia. As of 2004, Temasek owned stakes in many large foreign companies, including Standard Chartered, Bank of China, China Construction Bank, ICICI Bank, Global Crossing, as well as many of Singapore's largest companies, such as SingTel, DBS Bank, Singapore Airlines, PSA International, SMRT Corporation, Singapore Power, Neptune Orient Lines and Mediacorp. It also holds investments in public icons like the Singapore Zoo and Singapore Pools, the only legal betting company in Singapore. On 14 October 2004, it announced that it was closing the operational headquarters of ST Engineering and transferring the latter's assets to itself.

The 2004 report states that Temasek manages S$90 billion in assets. This represents an average total shareholder return of 18 percent year-on-year since 1974. Temasek Holdings has increased transparency over the years, opening its books in 2005. Standard & Poor's assigned Temasek Holdings a AAA credit rating for "the best companies". At the time of this report, the various Temasek holdings linked companies held one-third of Singapore's stock market capitalization between them.

Ho Ching, Head of Temasek

Ho Ching, the former head of Temasek and the wife of current prime minister Lee Hsien Loong was voted by Forbes as the world’s third most powerful woman. According to to Forbes: Ho has since played a key role in raising its Temasek’s profile as well as its portfolio, which has grown by more than $100 billion under her watch. [Source: Forbes]

Jim Rogers wrote in Time: “Talk about influence! China, a country with 1.3 billion people, recently said it was considering establishing a company "like Temasek Holdings," the investment arm of the government of Singapore. Temasek in the past five years has moved from being a passive custodian to being an active—and outstanding—investor. Shareholder equity has nearly doubled since 2002, to about $90 billion. [Source: Jim Rogers, Time, May 3, 2007 ***]

“When Ho Ching became CEO in 2002, she overhauled Temasek, setting up more precise performance guidelines while raising accountability and transparency. Ho is well connected: her husband is Prime Minister Lee Hsien Loong, son of Singapore's legendary elder statesman Lee Kuan Yew. But she has taken a strictly professional approach. Rather than prop up zombies, she has not been afraid to let operations fail. ***

“Ho's critics like to focus on Temasek's troubled $3.8 billion purchase of Shin Corp. from former Thai Prime Minister Thaksin Shinawatra. But as one of my mentors instructed me, if you do not make mistakes, you are not trying and will never succeed. Both Japan and South Korea have just announced that they too are considering "Temasek-like entities." Expect even more countries to discover that the road to the future runs through Singapore.” ***

Temasek's Ho Ching, Likes to Take Risks

Sara Webb wrote in the New York Times, “One of the colleagues of Ho Ching once said it was her willingness to take risks, not her family ties, that won the wife of the prime minister her top job at Temasek Holdings with a mandate to shake up Singapore's state investor. That penchant for risk-taking came to the fore this week with Temasek's unexpected £2.1 billion, or $4.34 billion, investment in Barclays, the U.K. bank that is locked in an increasingly costly bidding war for ABN AMRO in what would be the world's biggest bank takeover. The investment is one of many big deals engineered by Ho, who keeps a low profile despite her prominence in financial circles and as a member by marriage of the first family of Singapore.[Source: Sara Webb, New York Times, July 27, 2007 \*\]

“Since taking the helm at Temasek in 2002, Ho has stepped up the diversification of the fund beyond its small home market. Her goal: a portfolio split with about a third invested in Singapore, a third elsewhere in Asia and the rest in developed economies. Temasek's declared strategy of aiming for one third of its assets in OECD countries assumes even more salience now, given the sensitivities experienced in recent years in Thailand and Indonesia," said Garry Rodan, director of Murdoch University's Asia Research Center in Perth, Australia. The Barclays investment "is in line with Temasek's desire for balance between markets with differing degrees of risk," he said. \*\

“When Ho, an engineer by training, joined Temasek, she quickly brought in a host of deal-makers to scour Asia for targets and began to publish an annual review of the firm's performance. Among the results: some $5 billion invested in Chinese state banks has paid off handsomely so far, with shares in China Construction Bank up two-and-a-half times since its IPO, and Bank of China up 40 percent. In overall performance, Temasek has kept pace with benchmarks such as the Straits Times Index and MSCI indices. Over five years, Temasek's shareholder return averaged 10 percent, matching the MSCI index but below the STI's 13 percent. \*\

“Some in the financial community warn that Temasek's strategy of buying big chunks of companies exposes it to potentially deep losses if markets turn. "Temasek's strategy is similar to that of a big private equity investor and could well end up producing lower returns than the big index-tracking funds," said a former adviser to the firm. "You just can't become George Soros or Warren Buffett overnight." \*\

“Ho tends to avoid the media and has made few comments on Shin. When she addressed a Morgan Stanley conference in November 2006, with the Shin deal in the limelight, the bank told the media not to ask questions. Even her age is considered off limits. A Temasek spokesman was unwilling to reveal her age or date of birth, although a Temasek bond document in 2005 said she was 52. \*\

“Ho began her career at the Ministry of Defense, where she met her husband, Lee Hsien Loong, the eldest son of former Prime Minister Lee Kuan Yew. While Lee took up a variety of cabinet positions, Ho moved to state-owned Singapore Technologies in 1987, running a mix of defense, technology, property and stock brokerages that she restructured, divesting some units and listing others. Temasek's chairman, S. Dhanabalan, a former cabinet minister, asked her to head Temasek in 2002, telling local media at the time that Ho was "the best person for the job," that it had "nothing to do" with her being Lee's wife, and citing "a willingness on her part to take calculated risks." Dhanabalan even referred to ST's purchase of disk drive maker Micropolis, which was liquidated soon afterwards with debts of 630 million Singapore dollars, saying Ho had had the courage to cut the losses.

Temasek’s Performance and Activities in the Late 2000s

In 2007 Temasek reported a 29 percent drop in earnings to S$9.1 billion (US$6 billion) reflecting fewer transactions and a cautious outlook of the market for the year. Its portfolio stood at S$164 billion, breaching the US$100 billion mark for the first time and about 27 percent higher than 2006.

In 2008 Temasek achieved record profits of S$18 billion (US$12 billion), double that of 2007. This was boosted by asset sales of S$17 billion in the past year. Temasek's portfolio grew to S$185 billion (US$134 billion), an increase of 13 percent from the previous year, including a rare S$10 billion injection by the Singapore government.

In February 2009, Temasek said its investment portfolio value fell by 31 percent, or about $39 billion, from March to November last year. In May 2009, amidst the Subprime mortgage crisis, Singapore's finance minister defended Temasek's performance in parliament, as the wealth fund has made S$56 billion (US$38.5 billion) in the current market cycle that began around March 2003. In this 6-year period, it achieved an annualised return of 15 percent, better than the MSCI global equity markets' 6 percent returns and 'respectably' compared to other reputable institutional investors.

Temasek’s Performance and Activities in the 2010s

In July 2010, Temasek reported a 42 percent full recovery of its portfolio to S$186 billion (US$134 billion ), but net profit fell 26 percent to S$4.6 billion. S$10 billion new investments were made over the year, with the most recent in resources and energy sectors. As of March 2010, total investments within Asia increased from 74 percent to 78 percent, OECD dipped from 22 percent to 20 percent. About 23 percent of investments by value are unlisted assets. It is likely to maintain its Asia focus in the near future.

Also in 2010, SingBridge International was established to develop integrated townships and large-scale projects in Asia. Seatown was established and seeded with S$4 billion as a pilot project to invest independently of Temasek, with ability to hedge positions. It may invite external institutions to co-invest in 3–5 years and the public in 8–10 years. It cited protectionism in developed countries, the European sovereign debt crisis and asset bubbles in developing economies among risks for a slower recovery.

In 2013, Temasek Holdings setup a new company Pavilion Energy Pte. Ltd for investing in the liquefied natural gas (LNG) industry. March 4, 2013, Temasek increased its share holdings in Repsol to 6.3 percent. This increase of 5 percent was valued at €1 billion. In addition, Temasek bought €600 million worth of shares in Evonik on March 10, 2013. This makes Temasek a major investor in the German chemicals company.

Controversies Involving Temasek

Temasek’s close links to the government have on several occasions caused protests in foreign countries. When ST Telmedia (STT Communications), a Temasek-linked company (TLC), took a significant stake in Indonesian Indosat, workers went on strike to protest working for Singapore. In 2003, when ST Telemedia (STT Communications) acquired a two-third share of computer networking telco Global Crossing, the acquisition had to be approved by the U.S. government to ensure a foreign government did not control the extensive network.

Sara Webb wrote in the New York Times, “While Temasek is regarded as the Asian standard-bearer among increasingly prominent sovereign funds, its hefty size and government links have helped provoke opposition to investments in nearby Thailand and Indonesia. The Temasek-led $3.8 billion investment last year in the Thai telecom firm Shin, which was owned by former Prime Minister Thaksin Shinawatra, has lost about one third of its stock market value. Shin's sale helped to trigger a prolonged political crisis in Bangkok. Temasek's investment in Indonesia's PT Indosat has also come under attack, in part because Temasek-linked companies are big investors in the country's telecom sector. Temasek says it is not involved in any anti-competitive business practices. \*\[Source: Sara Webb, New York Times, July 27, 2007 \*\]

Controversial Sale of Shin Corporation to Temasek

Temasek's 2006 acquisition of Shin Corporation, owned by the family of then Thai prime minister Thaksin Shinawatra, was particularly controversial, with protestors burning effigies of Lee and Ho on the streets of Bangkok. The deal was a factor in exacerbating the Thai political crisis, which eventually led to the downfall of Thaksin and a review of the transaction's legality. The military junta that overthrew Thaksin, later tried unsuccessfully to force Temasek to divest a large part of its investment in Shin Corp. As of 2011, Temasak still effectively controls the majority of share in Shin Corporation which changed its name to Intouch Corporation via its affiliates. [Source: Wikipedia]

In Thailand, Thaksin’s selling of the Shin Corporation, his family conglomerate and Thailand’s largest telecommunications company, to a Singapore’s Temasek Holding for $1.9 billion in January 2006 without paying any taxes was the last straw for his government. The Thai public had been putting up with his antics, arrogance and questionable decisions for some time. Temsasek initially obtained 49.6 percent of Shin by purchasing 1.49 billion shares for $1.25 each and ended up, with Temasek, along with its partners, controlling 90 percent the company. The deal was configured such a way that Thaksin didn’t have to pay any tax on his gains. Thaksin said, “The sale is mainly because my children want me to dedicate my efforts towards work without any concerns on conflict of interest.” The same day the deal was announced, a law came into effect that raised the limit on overseas ownership in Thailand’s telecom companies to 49 percent from 25 percent.

Critics claimed insider trading took place and complained that national assets—including communications satellites—were sold to a foreign government. Among Shin’s assets were Thailand’s leading mobile phone operator, a satellite company, a low-cost airline and the television station iTV. Large street protest were held that opposed to deal and called for Thaksin to step down. Anger was also directed at Singapore. Protestors burned effigies of Singapore’s prime minister and carried placards saying, “Thailand Not For Sale, Get Out,” and called for a boycott of Singaporean goods.

Temasek- Shin Corporation Deal

In January 2006, the Straits Times reported: “Temasek and a group of Thai investors paid 49.25 baht per share for a 49.6 percent stake in Shin, just as the stock hit an 11-year high. Analaysts say Temasek Holdings surely had its eyes wide open to the risks of buying into a diversified behemoth like Thailand's Shin Corp, but they are divided over what it saw in the conglomerate's core telecoms business that warranted a 73.3 billion baht (S$3.1 billion) price tag. Temasek's deal also comes at a time when Shin's crown jewel Advanced Info Service (AIS), the telecoms business, is grappling with regulatory inertia in granting the sought-after 3G cellular licences that may significantly boost its flagging bottom line, they note. AIS, in which Shin owns a 42.86 percent stake, saw its net income drop 10 percent to 1.98 billion baht for the quarter ended Sept 30 last year, due to an intense price war in the Thai market. But it still retained its No. 1 spot. [Source: Straits Times, January 25, 2006 |=|]

“Although Thai analysts expect AIS' growth prospects to recover, they note that Shin shares traded on an estimated price-earnings multiple of 16.1 times, compared with an average of 11.8 for the Thai telecoms sector, according to Reuters data. "The price is not what most will consider cheap for the overall quality of assets that Temasek will get from the conglomerate, especially since AIS contributes about 90 percent of Shin's bottom line," noted one Bangkok-based analyst. He reckons that Temasek may have "some difficulty" streamlining Shin's diversified holdings in consumer finance, transport, broadband and telecoms in future and this is a "hidden cost." |=|

“Thai Prime Minister Thaksin Shinawatra yesterday defended his family's sale of its controlling stake in Shin Corp to Singapore's Temasek Holdings amid criticism over the 73.3 billion baht (S$3.1 billion) deal. Concern has erupted on two fronts -- with critics attacking the fact that the PM's family is escaping capital gains tax on the US$1.9 billion it netted from the sale and that the huge firm with sizeable interests in telecoms, satellites, media and aviation has been sold to foreigners. But Mr Thaksin rebuffed the criticism, noting that the management of Shin would remain Thai: "It's globalisation. Thais are also investing in other countries." He also said the size of the sale left his family with little choice but to consider overseas buyers. "Do you think it's easy to find anyone with more than 70 billion baht in cash?" he asked. "How many people are like that in this world? It's not like selling Chinese rice cakes." |=|

“The billionaire politician also said that the tax exemption was legal under a long-standing provision for deals done through the Stock Exchange of Thailand. The sale ends the Shinawatra family's association with Shin, the sprawling telecoms-based conglomerate founded by Mr Thaksin and his wife Pojamarn Damapong 22 years ago. It also follows longstanding allegations of a conflict of interest between his political career and business empire. English-language daily, The Nation, said in an editorial that the deal was "based on calculated, self-serving motives" and Mr Thaksin was misleading the public by claiming it was designed to eliminate controversy over his conflict of interest. |=|

Temasek Loses $4.6 Billion on Its Bank of America Stake

Temasek was estimated by analysts to have incurred a loss of between $2.3 billion and $4.6 billion on the sale of a 3.8 percent holding in Bank of America. The huge loss attracted unusual public criticism in Singapore. Temasek is also thought to have incurred a loss on the sale of a stake of almost 2 percent in Barclays, the UK bank. Temasek had spent about $5.9 billion since 2007 buying shares in Merrill Lynch & Co., acquired by Bank of America in January 2009 1 after its stock slid 78 percent in 2008.

In May 2009, in the midst of the Lehman Brothers financial crisis, Chen Shiyin of Bloomberg wrote: “Temasek Holdings Pte sold its 3.8 percent stake in Bank of America Corp. at a loss that may total $4.6 billion, as the Singapore state-owned fund shifts bets from Wall Street to emerging markets. The sale may have raised about $1.27 billion, based on the average price of Bank of America stock in the first quarter. The divestment was completed by March 31, according to a U.S. filing. Temasek declined to comment on the price. [Source: Chen Shiyin, Bloomberg, May 15, 2009 /^/]

Costas Paris wrote in the Wall Street Journal, “According to people familiar with the situation, Temasek sold the Bank of America shares for an average $7 a share, netting $1.3 billion, but losing an estimated $4.6 billion on the investment.Temasek made some high-profile investments in the past two years, including in Merrill Lynch and in Barclays PLC, in which it increased its stake in June 2008 to a little over 2 percent paying about $399 million.[Source: Costas Paris, Wall Street Journal, May 18, 2009 <^>]

“The value of Temasek's investment portfolio fell 31 percent, or by 58 billion Singapore dollars (US$39.61 billion), to S$127 billion in the eight-month period ended Nov. 30, Singapore's Senior Minister of State for Finance Lim Hwee Hua said earlier this year. The investment firm bought a 14 percent stake in Merrill in stages starting from December 2007, paying $5.9 billion in total. At that time, it described the purchase as a long-term investment. <^>

“When Bank of America acquired Merrill in January, that stake was converted into 189 million Bank of America shares. Temasek wasn't informed of the merger talks between Merrill and Bank of America and "never wanted to be a Bank of America investor," a person familiar with the situation said. "Very early in the year, the plan was set in motion to divest the holding," the person said. "[There was] little potential in Bank of America shares. If one sees the results of the stress tests in the U.S. and analysts' reports on Bank of America, the picture is not bright," a second person said. "Temasek sold between the high and low of Bank of America shares during the first quarter," the second person said.” <^>

“They probably want to turn the page on this one and move on,” David Cohen, an economist with Action Economics in Singapore. Told Bloomberg. “I suspect they’re telling themselves they should have focused on Asian investments, particularly China. You can’t fault them now. The financial crisis blind-sided a lot of investors.”/^/

According to Bloomberg” Along with its stake in Merrill Lynch, Temasek also raised holdings in Standard Chartered, the London-based bank that gets almost all its profit from emerging markets, and bought shares in Barclays, the U.K.’s third-biggest bank. The company had earlier said it wants the Organization for Economic Cooperation and Development countries to account for about a third of its investment portfolio. Temasek will cut its holdings in the so-called OECD countries to 20 percent as it expands in Asia and emerging markets from Latin America to Africa, Ho said in a speech posted on the company’s Web site. /^/

Temasek Changes Its Focus to China

In May 2009, in the midst of the Lehman Brothers financial crisis when it stakes up huge losses on investment in Western banks and financial houses, Chen Shiyin of Bloomberg wrote: “Temasek, whose investments shrank 31 percent in the eight months, raised its stake in China Construction Bank Corp. this week, and Chief Executive Officer Ho Ching said the fund would reduce exposure to developed economies. [Source: Chen Shiyin, Bloomberg, May 15, 2009 /^/]

“The belief now is that the world is not so American-centric anymore,” said Melvyn Teo, associate professor of finance at the Singapore Management University. “It’s going to be driven more and more by the Chinese economy and consumer so might as well load up more on Chinese banks than American banks.” Bank of America sold part of its Construction Bank stake to a group of investors including Hopu Investment Management Co., a private-equity fund run by Goldman Sachs Group Inc.’s China partner Fang Fenglei, and Temasek, two people with knowledge of the matter said on May 12. “We have also been re-assessing our long term portfolio balance over the last two years,” Ho, 56, said in the May 12 speech. “As Asia continues to develop, it continues to de-risk. We are increasingly more confident of Asia’s future.” /^/

In April 2012, Temasek bought $2.3 billion worth of Hong-Kong-listed shares of Industrial and Commercial Bank of China (ICBC), the largest bank in the world by total assets and market, from seller Goldman Sachs. The move gave Temasek stakes in three of China's top four banks and showed it was serious about China. Michael Flaherty and Saeed Azhar of Reuters wrote: “Temasek was burned by its financial industry exposure in 2008, hit by stakes in large European and U.S. banks that plunged in the crisis. But it has kept nearly 40 percent of its investment portfolio in banks it feels are strong and are capturing emerging market growth. The deal for ICBC takes Temasek deeper into China's banking industry, which has grown from insolvency six years ago to a sector that holds four of the world's top ten banks by market value. Ding Wei, Temasek's China head, told Reuters it bought into ICBC because the price was "reasonable" and the state investor was positive on the bank and China's long term development. Temasek already owns stakes in China Construction Bank and Bank of China. China assets accounted for 20 percent of its portfolio as of March 2011. [Source: Michael Flaherty and Saeed Azhar, Reuters, April 16, 2012 |~|]

"Temasek has laid out its strategy before on where it thinks growth is. Within Asia, China anchors the growth, so Temasek is putting money where its mouth is," said Song Seng Wun, an economist at CIMB. The latest purchase was of 3.55 billion H-shares, or about 1 percent, of ICBC. Temasek now has a 1.3 percent stake in ICBC, a Temasek spokesman said. This includes ICBC shares that the state investor owns directly as well as various other stakes held by Temasek-linked companies. |~|

“Temasek's financial services portfolio includes stakes in Singapore's DBS Group, Indian lender ICICI Bank and Standard Chartered. The latest stake purchase comes after Temasek, which manages about $150 billion in assets, raised about $800 million since the start of the year in three significant selldowns in its portfolio companies. This included a 1.4 percent stake sale in ICICI Bank. Temasek is also selling its 67.4 percent stake in Indonesia's Bank Danamon (BDMN.JK) to DBS in exchange for DBS shares, in a deal that is awaiting regulatory approval. |~|

Ho Ching Steps Down and Other Leadership Changes at Temasek

In October 2009, after it was revealed that Temasek lost billion of dollars in its investments in Merrill Lynch and Bank, Ho Ching stepped down as the CEO of Temasek. She drove the expansion outside Singapore and increased financial assets to 40 percent of the company’s portfolio. Charles ‘Chip’ Goodyear, the 51-year-old former head of BHP Billiton Ltd. who oversaw a fourfold increase in the company’s stock during his almost five-year tenure as CEO, was originally named to replaced her.

In June 2012, Joyce Koh & Sanat Vallikappen of Bloomberg wrote: “The state investor has faced changes at the top since the middle of 2009, when it parted ways with former BHP Billiton Ltd. head Charles “Chip” Goodyear, who was going to replace Ho Ching as chief executive officer, over differences in strategy. Simon Israel, a former Temasek executive director and president, retired from his executive and board roles in July 2011, while former President Hsieh Fu Hua stepped down in October. [Source: Joyce Koh & Sanat Vallikappen, Bloomberg, July 5, 2012 ^+^]

“The company named Lee Theng Kiat, head of its Singapore Technologies Telemedia Pte unit, as president and general counsel on April 1, 2012. Boon Sim, former global head of mergers and acquisitions at Credit Suisse Group AG, joined as president for North America on June 1. In January, it hired John Cryan, the former chief financial officer of UBS AG, as president for Europe. Gregory Curl, once a candidate for CEO of Bank of America Corp. (BAC), is its fourth president. ^+^

Temasek Spends More on Investments, Adds Energy Holdings

In July 2012, Temasek said it spent the most on new holdings in four years as it added more energy and resources producers to its portfolio.Joyce Koh & Sanat Vallikappen of Bloomberg wrote: “The company said it made S$22 billion ($17 billion) of investments in the year to March 31, boosting assets to a record S$198 billion. It invested S$2 billion in FTS International, a U.S. shale energy production service provider which it has a 40 percent stake in, and S$1.3 billion in in The Mosaic Co., a U.S. fertilizer producer. Temasek struggled to boost its total shareholder return from 4.6 percent in the previous year as Europe’s turmoil and the lackluster U.S. economic recovery roiled markets, said Melvyn Teo, director of BNP Paribas Hedge Fund Centre at the Singapore Management University. [Source: Joyce Koh & Sanat Vallikappen, Bloomberg, July 5, 2012 ^+^]

“The deals helped Temasek weather Europe’s debt crisis and a lackluster U.S. economic recovery that roiled markets. Total shareholder return, which includes changes in asset values and dividends, gained 1.5 percent in a year when market volatility reached the highest level since the 2008-2009 crisis, while the MSCI World Index (MXWO) lost 1.7 percent. “My sense is that Temasek’s modus operandi in difficult years is actually to be even more aggressive in terms of its acquisitions,” said Eugene Tan, an assistant law professor at Singapore Management University and a nominated member of Parliament who’s not affiliated with a political party. “They have the bandwidth to go into many investments, which many others may be somewhat hesitant. It reflects their confidence of what they feel will work out for them in the medium to long term.” The company said yesterday profit declined 16 percent as contributions from units fell amid the global slowdown. Net income dropped to S$10.7 billion from S$12.7 billion a year earlier, it said in its annual report. Total shareholder return narrowed from 4.6 percent in the previous year. ^+^

“We see contagion risks from Europe as potentially significant,” Chia Song Hwee, Temasek’s head of strategy and credit portfolio, and co-head of portfolio management, China and Singapore, said in a briefing yesterday. “While the environment is going to be very challenging, our financial flexibility and long-term investment stance will allow us to capture and address opportunities.” ^+^

“New investments increased 69 percent from S$13 billion in the previous year, boosting holdings in North America and Europe to 11 percent of Temasek’s portfolio from 8 percent last year, and doubling the energy holdings to 6 percent of its assets. “We believe that energy and resources will continue to be a growth segment, and has got great long-term potential,” said Chia. “We continue to look at opportunities, the values, in this space and invest in them accordingly.” ^+^

“Divestments totaled S$15 billion, the most in three years, including shares of Avago Technologies Ltd. (AVGO), PT Chandra Asri Petrochemical, Hutchison Port Holdings Trust, ICICI Bank Ltd. (ICICIBC) and Kaisa Group Holdings Ltd. (1638), it said. In the previous year, the company sold S$9 billion of its holdings, it said. ^+^

“Temasek had a negative shareholder return of 30 percent in the year ended March 2009 after losses tied to the sale of its stake in Bank of America Corp. and Barclays Plc. (BARC) It then posted a 42 percent increase in 2010. The average return was 15 percent over a three- year period, and 10 percent over 10 years, it said. “Given the market conditions in the last fiscal year were very choppy, the fact that they increased their assets by a few billion is decent,” said Vasu Menon, vice president for wealth management at Oversea-Chinese Banking Corp. in Singapore. ^+^

“Assets in Singapore slid to 30 percent from 32 percent of holdings. Holdings in Asia excluding Singapore fell to 42 percent of its portfolio from 45 percent a year earlier, the company said in the report. Investments in Australia and New Zealand made up 14 percent of Temasek’s assets from 12 percent a year earlier. Banks remained the biggest part of the company’s holdings even as they made up a smaller portion of the portfolio. Financial services accounted for 31 percent of holdings, down from 36 percent a year earlier, it said. Transport and industrial companies were 21 percent of assets, and those in technology and telecommunications made up 24 percent. ^+^

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Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Singapore Tourism Board, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated June 2015

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