ON A CLEAR DAY YOU CAN SEE TEMASEK

This 15th century navigation Mao Kun map of Admiral Zheng He's naval expedition is the first recorded document in history showing the settlement of Temasek or 淡馬錫 (Tan-Ma-Sek), the island arrowed in the top left. The sovereign wealth fund Temasek Holdings (Pte) Ltd takes its name from this early settlement. Just as the settlement has grown into the global city of Singapore of today, Temasek Holdings has come a long way since its inception in 1974 to what it is today, a behemoth of an investment company. As at 31 Mar 2022 it has a portfolio valued S$403 billion.

Below is a chart of Temasek and its fully-owned investment subsidiaries which are known. There are probably still several others not yet discovered. Excluded are the various operating subsidiaries.

Outside of its HQ in Singapore, Temasek maintains 14 fully-manned offices in 8 countries. It is currently fitting out the latest office in Paris which will open early this year. For an investment portfolio heavy on technology startups, it is glaring Temasek does not have an office in Israel which has been at the technological forefront for the past several decades.

When looking at behemoths, I am reminded of something I heard when I was green behind my ears in the corporate world. This came from Edmund Tie when he was a director with Jones Lang Wootton, at the time when he was just about to depart to set up his own real estate consulting firm. The reason for him and a few of his associates to pull out was what he explained as too many expatriate 'Tua Peh Kong" in JLW. The literal translation of Tua Peh Kong is 'grand uncle'. It is a Chinese deity, the God of Earth, the one who provides personal protection in one's environment. There is always a small Tua Peh Kong temple at a Chinese cemetery. In business, Tua Peh Kong is used as a derogatory term to refer to the dead weights, the non-productive fat cats in the company. The Japanese refers to these as 'window executives'. One wonders how many tua peh kongs there are in a behemoth sovereign wealth fund.

For many years after incorporation 1974, Temasek operated as a backwater investment outfit, putting Singapore reserves into the domestic equities market. It also operated as the booking unit of privatised government-linked companies. All these changed sometime in 2002 when Mdm Ho Ching joined the company as an Executive Director, and then moved on to take the helm as CEO in 2004.

The size of the fund had by then grew too big to be concentrated on a single local market. Ho Ching's arrival saw a shift into internationalising investment portfolio and adoption of modern risk taking methodologies. Although these are paradigm shifts, Ho Ching's legacy at Temasek is much more.

To chase better yields, Temasek moved from traditional 60-40 equities-bonds investment into higher risk private equities. Venture capital began to take on higher weight in its portfolio as it dived into funding start-ups built on cash-burning models. These are ventures where the investment makes no returns for years, but the entrepreneurs can buy private jets (Wework), bungalows (Grab, FTX) long before the companies go IPO. These are also investments where there is no exit path except after IPO. The investor lives and dies with the venture pre-IPO.

Temasek has also gone into leveraged mode having taken on hundreds of millions of $ in debt. It is betting its investment expertise can bring in higher ROI on borrowed funds. 

Yet another change in Temasek investment mission is taking on venture building. This is somewhat similar to EDB's role in the past. Will management be stretched too thin? Can mercenary expertise be a long term fixture to ensure financial success? Similar programmes in competitive sports where we field naturalised foreign-born players have not been much of a success story. Neither was Chartered Semiconductor in the 1990s. Never reported in local media is Temasek's failed acquisition of Scandinavian energy exchange in order to index SLNG (Singapore Liquified Natural Gas), nor the upstream projects of Pavilion in some gasfields - see my blog on Orchard Energy. Having the financial muscle does not translate to a capability to run the operation. Lessons learnt not just from Chartered Semiconductor, but NOL.

Another new direction Temasek is moving into is mutual funds. It has set up closed-end and open-end funds. One new open-end fund is pending listing in a New York exchange. So it is no longer just investing state reserves, but is going into the business of managing other investors' wealth. There is the advantage of synergy as these fund management entities have access to the vast resources of the Temasek group. The reverse view is the socialising of Temasek's cost for the benefit of these funds. It is fair dinkum to suggest the closed-end fund investors would be the closely-knit well-heeled elites, certainly to include million dollar-salaried crowd in Singapore Inc. Will Temasek end up as some families personalised funds? With the same entity managing the funds of the state and private investors, the inevitability of conflict of interest is in plain sight. (Don't forget you first hear of this risk here).

Ho Ching has revamped a sleepy-eyed investment fund into a top-notch hyped up global investor able to wheel and deal at the top levels. This has to come about with compensation packages jacked up to the international levels of the fund management industry which can be mind-boggling. In an industry where top performers often move on to set up their own funds, Temasek has helped several departing talents by providing seed money to kick start depositor base for the new funds. Instead of loosing talent, Temasek invested in them. Put another way, the state investment company is putting funds into another investing firm to invest for them.  

The 2022 Review indicated Board Committees independent of management have been set up. These are chaired by non-executive directors, each with a specific task of looking into certain aspects like audit, compensation, risks, operations. This is a healthy development.

Temasek adopts the Santiago Principle which seeks to promote good governance and accountability in SWFs. It is definitely more transparent than GIC, the other SWF of Singapore. Nevertheless, Temasek continues to attract fair amount of criticisms, especially in specific asset failures. In the past, a certain Prof Christopher Balding use to be a prominent critic of Temasek and GIC. Take for example, this paper of his in 9 Feb 2012 "A Brief Research Note on Temasek Holdings and Singapore" with the cheeky sub-title "Mr Madoff Goes to Singapore" In essence, Balding made the point the annualised rate of return of 17% p.a. up to 2009 was impossible based on ROI of equity markets in the world. So either Temasek financials were hogwash or there is a huge portfolio of secret assets not disclosed. The good professor missed the point that Temasek kick-started its operation by the transfer of huge portfolio of government assets at cost. In the years that followed, as these government-linked companies were listed, Temasek portfolio made substantial valuation gains which tended to significantly make a positive bias in long term annualised rates. The impact of these initial assets transferred at cost has probably run its course by now and Temasek's long term 20 year moving annualised rates are no longer exagerrated by these early cheap portfolio.

Balding made a further study in 2015 that covered Temasek and GIC. Once again he made preposterous claims of missing assets of billions of dollars. I drop the link here in case readers wish to check it out. "A Brief Research Note on the Government Investment Corporation of Singapore, Temasek Holdings, and Singapore Public Finances".... Prof Chris Balding. I blogged in July 2021 that opposition figure Kenneth Jeyaratnam, who writes regularly about the reserves, flew out to Hongkong to meet up with Balding. As a concerned Singaporean, Jeyaratnam wanted to go through Balding's data, but left the meeting disappointed. He felt Balding's computation was not correct.

One wonders why an American professor teaching in a university somewhere in Beijing, China, had been so fixated on the state of reserves of Singapore. Some geopolitical propaganda effort cannot be completely ruled out. This is purely my guess, but such is a world we live in now. One needs to be constantly sensitive to context. The scale of Temasek's investments is massive and has political implications as it is government-owned and it frequently takes controlling stakes.

A good example of geopolitics at play is the failed attempt to secure the services of Chip Goodyear. Contracted to replace Ho Ching as CEO, Goodyear was already working in Temasek with official takeover timed for October 2009. In July he resigned and triggered rounds of speculation as to the reason for the sudden departure. These included :
- He was not given a free hand (Ridiculous suggestion. CEOs know they all report to shareholders)
- Ho Ching was still micro-managing and had designs to cling on to the job (Juvenile suggestion since her planned departure was already public knowledge).
- Goodyear's involvement in the 'Food for Oil' scandal with saddam Hussein's Iraq was an issue (Impossible since this was pre-fact and Temasek certainly was aware of the case).

- Goodyear was a mysterious character and there was indication he could be CIA asset (Too far fetched. Chip is from the Goodyear Tyre family. His last job was CEO of BHP Billiton where he successfully brought the troubled giant resource company back to financial health).
- His premature retirement from BHP was an issue (This is nonsense. He timed his early retirement at the height of the commodities market due to China's economic growth, so that he benefitted handsomely from the retirement package).

The best suggestion and the one I buy into, was provided by The Guardian. Goodyear's expertise was in commodities and resource industry. He came in to lead Temasek out of a portfolio too heavy on financial sector. Temasek had just exited from Bank of America with a S$6.7 billion losses after the 2007/2008 financial crisis. Temasek was trying to re-strategise into the energy and commodities market. In all probability, Goodyear's plans would have involved entering the mining sector. This would have been a path to competition with China, something the Singapore government is sensitive about. This suggestion has credence as Temasek Chair S. Dhabalan explained in broad terms the amicable breakup was due to differences over strategy. This is logical, reinforced with the fact Dhabalan is held in high regard as one of the more honest in the PAP leadership. 

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