Temasek Caught in the Maelstrom

Unfortunately, Temasek’s heavy weightage in banks resulted in some unpleasant losses. I had earlier mentioned that Temasek’s August 2008 declaration of a nice stable of $185 billion at end March 2008 was just that and had to be taken with a pinch of salt. Profits as at March 2008, and way before the slow downward market spiral became a quicker and quicker crash. It was just feel-good national day news. The stark horror is here and it will get worse before it gets better as they say. The fact that Ho Ching was made to excuse herself out of Temasek is a sign around her neck that Temasek could have done much better and the current losses intolerable.

The comparison of Temasek’s performance to the MSCI World Index as an excuse that Temasek is actually not in trouble yet, is also not ideal. Temasek seems more like a (badly) balanced fund anyway while the MSCI is an equity index. Hence, it is no surprise that Temasek would perform better in terms of smaller losses, than an equity index.

Did Temasek practice due diligence in its investments? Frankly, it is hard to say and I presume it was “yes”, to a point. There was a genuine grab-before-it-is-gone fire sale going on at Merrill Lynch etc, tempting the daring and the foolish alike with the usual high risk, high return trade-off. To be fair and coolheaded about betting on value investments, the verdict is also not out yet still although many government critics have understandably rushed to use this tempting opportunity to bash Temasek, the government and the PAP all at the same time. Bashing away can only be good actually. GIC, better watch out.

Temasek’s Investments Decline 31% Amid Stock Slump

By Chen Shiyin and Jonathan Burgos

Feb. 10 (Bloomberg) — Temasek Holdings Pte’s investments shrank 31 percent in the eight months through Nov. 30 as the global stock-market slump eroded the value of companies from Barclays Plc to Merrill Lynch & Co.

The state-owned investment company’s assets were valued at S$127 billion ($85 billion), down from S$185 billion at the end of March last year, Lim Hwee Hua, senior minister of state with the finance ministry, said today. The MSCI World Index fell 38 percent over the same period in U.S. dollar terms.

Chief Executive Officer Ho Ching, who drove Temasek’s expansion with acquisitions in China, Europe and the U.S., said last week that former BHP Billiton Ltd. head Chip Goodyear will take over the company in October. Temasek and Government of Singapore Investment Corp., the nation’s other sovereign wealth investor, have seen the value of their stakes in banks including Citigroup Inc. and UBS AG slide amid the global credit crisis.

“It’s easy to say the acquisitions were done at the wrong price but I believe Temasek and GIC took the risks based on their due diligence,” said Scott Lim, who oversees about $800 million as chief executive officer of Amanah Asset Management Bhd. in Kuala Lumpur. “The depth of the crisis is something we couldn’t have anticipated.”

Goodyear, 51, will become the first foreigner to run the company when he takes over from Ho, 55, the wife of Singapore’s Prime Minister Lee Hsien Loong. Temasek generated annual returns of 17 percent between its inception in 1974 and the end of March.

Sovereign Wealth Investors

Sovereign wealth funds in Asia and the Middle East have pumped money into global financial institutions to help replenish capital eroded by writedowns and losses. Barclays raised 5.3 billion pounds ($7.8 billion) in October by selling securities to a group of Middle-Eastern investors including Qatar Holding LLC.

Temasek said on Aug. 26 profit for the year ended March 31 doubled to S$18.2 billion as sales of energy and Chinese banking assets countered slowing returns from stock-market investments. Temasek has a controlling stake in six of Singapore’s 10 biggest companies, including DBS Group Holdings Ltd. and Singapore Telecommunications Ltd.

The company invested about $5.9 billion in Bank of America’s Merrill Lynch unit. It bought about 9 percent of the New York- based firm in December 2007 for $5 billion, or $48 a share, though its effective purchase price was reduced in July when the bank gave it a further $2.5 billion in shares. The investment bank’s shares lost 78 percent last year before the stock was delisted.

The Singapore investment company now holds about 189 million shares in Bank of America after converting its Merrill Lynch stock. Bank of America completed the Merrill Lynch purchase on Jan. 1.

Won’t Bail Out Companies

Temasek must make its investment decisions on a commercial basis, and should itself determine whether to increase investments in local companies, Lim said today in Parliament. She was responding to a question on whether the government will ask Temasek to increase its holdings in Singapore companies as economic growth deteriorates and share prices slump.

The government will instead assess whether a separate fund is needed to rescue local companies, Lim said.

“There has been a lot of talk, even at coffee shops at the grassroots level and among our residents, about the losses by our SWFs and whether this government has undone what our past government had so painstakingly built up,” said Inderjit Singh, a member of Parliament for the ruling People’s Action Party, and CEO of Infiniti Solution Pte, a provider of services to chipmakers.

Weathering the Cycles

Temasek, along with GIC, reduced its equity holdings amid the global slump last year “early in the crisis,” helping the funds post smaller losses than the MSCI World Index, Finance Minister Tharman Shanmugaratnam said on Jan. 19.

“GIC and Temasek have the ability and resources to weather the ups and downs, over multiple economic and market cycles,” Lim said. “The government is confident that they will continue to deliver good long-term returns within the risk limits set.”

GIC, overseeing more than $100 billion of reserves, has invested about $18 billion in UBS and Citigroup since December 2007. UBS, Switzerland’s largest bank, today reported a fourth- quarter loss of 8.1 billion Swiss francs ($6.9 billion) on trading losses and leveraged loan impairments, and said it plans to cut more investment banking jobs this year.

The fund said on Sept. 23 annual returns in the past 20 years averaged 7.8 percent in U.S. dollar terms, compared with 7 percent for the MSCI World Index.

GIC and Temasek both have “proper, sound” risk management practices, Lim said. The government reviews the risk limits for the two companies from time to time, she said, adding that current limits aren’t “aggressive.”

To contact the reporter on this story: Shiyin Chen in Singapore at


2 responses

  1. Pingback: The Singapore Daily » Blog Archive » Daily SG: 13 Feb 2009

  2. The SS

    From a layman perspective, how can due diligence be done given the swiftness in which those investments were entered into? How long does due diligence excercise take?
    None of my banking friends agreed their timing was correct when they started investing. All said markets will go lower without hindsight.
    This is bad performance any which way you try to look at it.. The MSCI is a diversified index.. not a 40% weighted Index…. trying to compare with different things.
    Till now there is still no admittance of bad performance, not a word of regret, not a word of contrition.
    Thank you again 66,.6% you just voted S$58billion away.

    February 13, 2009 at 12:16 pm

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