AI, infrastructure, private credit ‘compelling opportunities’ for Temasek’s near-term returns

[SINGAPORE] After another record year, Temasek is eyeing investments in artificial intelligence, infrastructure and private credit as “compelling opportunities” for near-term returns. It aims to increase its AI-related exposure to 15 per cent of total portfolio value by 2031, up from about 6 per cent currently.

The three areas were highlighted in the Temasek Review, the investment company’s annual report, launched on Wednesday (Jul 8). The aim is for investments in these three areas to comprise around a quarter of the total portfolio value come 2031.

Temasek continues to invest significantly in AI, said chief investment officer Rohit Sipahimalani, as broad-based earnings growth across global markets continues to be underpinned by capital expenditure in this area, alongside defence, energy security and electrification.

“Obviously AI is a big theme, and we are investing significantly alongside that, but we also recognise that there are a lot of risks in the environment, so we also try to balance that, make sure we have more resilience in the portfolio,” said Sipahimalani in a press briefing ahead of the report’s launch.

Within the AI ecosystem itself, Temasek takes on varying levels of risk across different segments, he added, while also increasing its exposure to core-plus infrastructure and private credit. These areas are seen as more resilient in volatile markets and better placed to withstand higher inflation, a potential headwind.

Temasek does not treat AI as an entirely new phenomenon; it sees AI as an extension of the digitisation trend it has invested behind since around 2019, rather than as a standalone theme, said Chia Song Hwee, CEO of Temasek Global Investments.

The technology, media and telecommunications (TMT) bucket makes up about 25 per cent of Temasek’s total portfolio.

Chia said Temasek expects AI’s share of this bucket to grow over time, drawing a parallel with how telecommunications companies once dominated the TMT bucket – accounting for as much as 95 per cent of it in earlier years – before ceding ground to a more technology-heavy mix.

Temasek’s AI exposure will rise not only from its direct AI investments but also as its portfolio companies invest more in AI themselves, the AI share of the overall portfolio naturally increases over time, said Temasek Singapore president Png Chin Yee.

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Asked why Temasek has 15 per cent as its target, Chia said the figure was directional rather than fixed, since the pace of investment would depend on the opportunities available.

“We have to recognise that we can only go with the investment opportunities we see. Sometimes conditions may not allow us to invest – for example, if valuations get too high, even if there’s an opportunity, it may not be prudent to invest,” he said. “So it’s a direction, and we will adjust the pace as we see how the market develops.”

AI investment also has to compete for capital with other priorities in Temasek’s portfolio, including core-plus infrastructure, life sciences and the energy transition, which the company said effectively caps how much it will allocate to AI in order to preserve diversification across its other key themes.

Four pillars

Temasek’s AI strategy spans four broad areas. Internally, it is embedding AI into its own investment and operating processes, including through a company-wide training programme and AI tools for specialised tasks.

It is also working with its Singapore-based portfolio companies on their AI adoption plans, while assessing AI-related risks across its global direct investments portfolio.

On AI-related investments, Temasek said it will deploy capital across the AI value chain – spanning energy infrastructure, semiconductor chips, cloud services, foundation models and software applications – balancing larger bets on established players with more selective stakes in AI-native companies.

Beyond its own portfolio, Temasek said it is also looking to support wider AI adoption, including by convening industry players and promoting responsible AI use.

Core-plus infrastructure and private credit

Beyond AI, Temasek is looking to scale up its exposure to core-plus infrastructure to 5 per cent of its portfolio by 2031, from 1 per cent currently, citing opportunities in ageing infrastructure and grid modernisation, renewable and nuclear energy, energy storage, and decarbonisation technologies.

These trends are underpinned by rising electrification demand and AI-driven data centre growth.

In private credit, Temasek’s initial S$10 billion portfolio has since crossed S$13 billion and now generates more than S$1 billion in annual recurring income.

Private credit currently makes up 2 per cent of Temasek’s portfolio value, with a target to scale this to 5 per cent by 2031, focused on senior secured structures spanning corporate lending, asset-backed financing and real estate credit.

Chia said Temasek’s approach to deploying capital in private credit is disciplined, with a deliberate effort to stay diversified across sectors and geographies to manage risk.

He argued that private credit is, in some ways, easier to assess than equities, since investors can read clearer signals of whether the market is overheated – such as how quickly credit spreads tighten, or whether loan-to-value ratios and collateral terms are becoming too loose – whereas such signals are less visible in equity markets.

Sipahimalani, meanwhile, said recent redemption pressure seen in some private credit funds has been driven largely by the design of the product rather than the performance of the underlying investments – pointing to funds that raised retail or third-party institutional capital with a shorter liquidity profile than the assets they hold.

Temasek’s own private credit portfolio, by contrast, is funded entirely by its own balance sheet, giving it a longer investment horizon and insulating it from such redemption-driven pressures.

He added that this dislocation has in fact created opportunities for Temasek to deploy capital selectively, noting that its private credit platform Aranda Principal Strategies has recently been actively buying secondaries, allowing it to pick and choose specific assets and risks within existing portfolios.