Temasek cuts employee compensation after failed FTX investment

TEMASEK said it has cut the compensation of its senior management and the investment team involved in the failed investment in FTX, as they take accountability for the reputational damage suffered by Singapore’s investment company.

This was disclosed in a statement issued on Monday by Temasek chairman Lim Boon Heng. 

Mr Lim said: “An independent team has conducted an internal review of the investment and the findings were directly presented to the Board Risk and Sustainability Committee, and to our board.

“Although there was no misconduct by the investment team in reaching their investment recommendation, the investment team, and senior management, who are ultimately responsible for investment decisions made, took collective accountability and had their compensation reduced.” 

Temasek added that it has drawn learnings from this incident, such as strengthening the approach on reviewing the governance, management and controls of a portfolio company, especially if it is fast-growing. 

The previously high-flying FTX, led by founder Sam Bankman-Fried, collapsed in November 2022 after a damaging report by CoinDesk involving trading firm Alameda Research, which was affiliated to FTX.

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Temasek invested US$210 million in FTX International and US$65 million in FTX US across two funding rounds from October 2021 to January 2022. The investment in FTX represented 0.09 per cent of Temasek’s net portfolio value of S$403 billion as at March 31, 2022. 

While Temasek held a 1.5 per cent stake in FTX, it was one of the exchange’s largest external investors. Other big-name investors included Sequoia Capital and Canada’s Ontario Teachers’ Pension Plan. Temasek did not have a board seat. 

Questions were raised in Parliament in 2022 about FTX. Deputy Prime Minister Lawrence Wong then responded that the loss did not mean Temasek’s governance system was not working, and no amount of due diligence and monitoring could eliminate the risks altogether.

He added that Temasek had also embarked on an internal review by an independent team that was “separate from the investment team” and would report findings to the board.

In the Temasek statement, Mr Lim noted that with FTX, “as alleged by prosecutors, and as admitted by key executives at FTX and its affiliates, there was fraudulent conduct intentionally hidden from investors, including Temasek”. 

Mr Lim acknowledged that the investment firm was disappointed with the outcome of the investment and the negative impact on its reputation. While there was no misconduct on the part of the investment team, the investment team and senior management took collective accountability.

No details were given on the quantum of the cut. The Straits Times understands that the compensation reduction was a one-off as the FTX investment was an exceptional one that had a negative impact on Temasek’s reputation. This reduction has already taken place. 

Temasek’s senior management is led by its chief executive Dilhan Pillay Sandrasegara.  

Mr Lim also explained Temasek’s rationale for investing in early-stage companies as it seeks to deliver sustainable returns over the long term.

“While there are inherent risks whenever we invest, we believe that we have to invest in new sectors and emerging technologies to understand how these areas may impact the business and financial models of our existing portfolio, and whether they would be drivers of future value in an ever-changing world,” Mr Lim said. 

Following on from this, Temasek aims to enhance its investment evaluation process.

Chief financial officer Png Chin Yee said: “We will use this experience to further strengthen our approach on reviewing the governance, management and controls of a company based on the nature of the business, whether it is an early-stage or mature company. This is especially so if the company is growing rapidly.” 

Temasek also plans to beef up the way it assesses the risk level of various business models. It will also enhance the due diligence on founders and the management team, as well as the operational robustness of such companies that undergo rapid growth. 

The firm added that it will continue to not invest in cryptocurrencies and will also be circumspect when considering new investments in the blockchain space. FTX was the only direct investment Temasek had in a digital asset exchange.  THE STRAITS TIMES