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TEMASEK continues to increase investments in technology-leveraged companies, as weakness in its listed investments, particularly its more traditional holdings in China and financial services, dragged the Singapore government-owned investment company to its first one-year negative return since 2009.
Its net portfolio value shrank by 9.02 per cent to S$242 billion in 2016. Over a three-year period, Temasek's total shareholder return was 3.25 per cent in Singapore-dollar terms; over a 20-year period, total shareholder return was 6 per cent.
Temasek also missed its own internal target, or risk-adjusted hurdle rate, which was 8 per cent over one year and 9 per cent over 20 years.
The investment company's head of financial services Png Chin Yee said in a press briefing: "2015 marked a challenging year for the global economy, with the slowest rate of expansion since the financial crisis. Equity and commodity markets were volatile, reflecting concerns around growth and supply and demand imbalances in the commodities market."
The decline came mostly from mark-to-market valuations of listed assets, particularly in Singapore and Hong Kong-listed Chinese stocks, which account for about 66 per cent of Temasek's listed investments. Compared to benchmarks for those markets - the Straits Times Index fell about 15 per cent over the period, while the Hang Seng China Enterprises Index slid 26 per cent - Temasek's portfolio fared better.
As a result of the weaker stock markets, China's representation in Temasek's portfolio shrank to 25 per cent from 27 per cent, among the more significant declines by geography in the portfolio.
But Temasek's investments in non-bank financial services outperformed the rest of its portfolio, even though the share of financial services fell to 23 per cent from 28 per cent as banks under-performed.
Overtaking financial services as the largest industrial slice of the pie was telecommunications, media and technology, which grew to 25 per cent of the portfolio from 24 per cent, on the back of investments in technology-related companies. This reflected an allocation bias towards new engines of growth such as insurance and less traditional business models.
Ms Png said: "Within the traditionally larger sectors, such as financial services and telecommunications, media and technology, we've been shifting the weight of the portfolio towards areas where we see greater growth potential."
Latching onto periods of equity upturn during the financial year, Temasek divested S$28 billion of assets and invested S$30 billion. The United States accounted for the largest share of new investments around the world, followed by China. New investments during the year included PayPal, Citic Securities and WuXi PharmaTech.
Temasek will continue to deploy resources to opportunities in the technology sector, with a new office in San Francisco slated to open around September.
Temasek International chief executive Lee Theng Kiat said in a statement: "Our new office in San Francisco will give us a good window to tech-related investment opportunities in Silicon Valley."
The latest performance did not help to lift Temasek's long-term 20-year returns, which slipped by about 1 percentage point to 6 per cent in 2016; this was significantly below long-term returns that were in the teens between 2007 and 2013. Part of the slowdown is a matter of point of reference - 20-year returns over the past three years are compared against the period of strong bull markets just before the Asian Financial Crisis.
But part of the change is also a result of investments into newer businesses that have yet to become major contributors, said Chia Song Hwee, joint head of Temasek's investment group and portfolio management group.
"The world is changing. Where we used to make returns, we can't be sure that we'll continue to do that. So we've been actively reshaping our portfolio in the last five years in the sectors that we've talked about. And the encouraging thing is, so far, the results seem positive, and we hope this trend will continue. A shift from 8 per cent in March 2011 to 23 per cent of the portfolio (today), in the new segments, is a big change. But obviously, with our portfolio size, it will take a while for the full effect to be felt."
Dilhan Pillay, the other joint head of the investment group, added: "We are seeding new businesses. Just as there were businesses that were seeded for us over 40 years ago or even 25 years ago, we are doing that now. And those should, hopefully over time, give us a much better return profile as they come into the mainstream of our investment portfolio."
Mr Chia said the investment environment remains challenging, and that despite recent volatility, certain markets still seem to be richly valued. Temasek will therefore take a "very cautious approach" to finding new opportunities.
Ms Png said key areas of focus in financial services include insurance, where penetration in Asia is still relatively low, and payment services, which enjoy resilient cash flows and can ride on technological shifts.
Mr Pillay added that the share of technology and life sciences in the portfolio should increase over time.