Temasek posts 24.5% one-year return; posts record investments and divestments

Published Tue, Jul 13, 2021 · 03:00 PM

A RECORD year for both investments and sales, coupled with some blockbuster listings of names like Airbnb and Doordash, pushed Temasek Holdings' one-year total shareholder return (TSR) to 24.5 per cent for the 12 months ended March 31.

In its annual review released on Tuesday, Temasek reported that its net portfolio value grew to S$381 billion from S$306 billion in the previous fiscal year on a Sing-dollar conversion basis.

During the year under review, Temasek invested S$49 billion and divested S$39 billion - record numbers on both counts.

Amid ongoing US-China tensions, Singapore's state investor said it will continue to invest in China, but with a focus on domestic consumption.

The question comes as Temasek's geographical exposure to China is the largest, at 27 per cent, as at March 31, 2021. Exposure to Singapore follows at 24 per cent.

That said, by geographical exposure, the Americas accounted for the largest share of Temasek's new investments during the year, followed by Singapore and China.

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Temasek's underlying exposure to developed economies has increased to about 60 per cent. Its exposure in the Americas as at March 31 this year was 20 per cent, and that in Europe, Middle East and Africa, at 12 per cent.

Nagi Hamiyeh, Temasek's joint head of investment and head of portfolio development said all the investments made in China by Temasek are "domestic in nature".

"While we keep monitoring the situation and the tension between the US and China, both the US and China are very important investment destinations for us, and we will continue investing."

Temasek is expecting the US to continue to see strong growth, boosted by fiscal stimulus, resilient private consumption and a steady pace of vaccinations. Inflation risks are likely to be moderate, but still bear watching.

Meanwhile, China's economy remains ahead of others in the recovery cycle, with the government's focus shifting towards sustainable long term growth.

The composition of Temasek's exposure to financial services - its largest sector exposure - has also changed significantly, in part due to new trends such as digitisation. Its financial services portfolio today - which makes up 24 per cent of its total portfolio - has shifted its focus from banks towards fintech, insurance and payments.

Investments in the payments and fintech space include UK-based wealth management services FNZ and Nium, a Singapore start-up that facilitates global digital payments and card issuance.

Its second-largest sector exposure is to technology, media and telecommunications firm, at 21 per cent. Technology investments included US-based online entertainment platform Roblox, UK based software developer Snyk and UK live-events management platform Hopin.

Mukul Chawla, Temasek's joint head of telecommunications, media and technology, and joint head of North America, said: “The runway is very long for digitisation-aligned opportunities and some of which are extremely early, and we believe that there will be ample opportunities for us to find interesting things to do."

Digitisation had also generated demand for online services, payments, digital health and technology platforms, which gave some of the unlisted companies in Temasek’s portfolio the opportunity to go public. Unlisted investments make up 45 per cent of its portfolio.

The 24.5 per cent gain in TSR compared with the -2.3 per cent TSR posted in the previous fiscal year, when its portfolio was hit by the sharp correction in March 2020, with most equity markets tumbling then as a pandemic rippled across the globe.

TSR is a compounded and annualised measure that includes dividends paid to its shareholders, but excludes its shareholder's capital injections.

Its TSR over 10 years was 7 per cent, while that over 20 years was 8 per cent. Compounded over 47 years since its inception in 1974, annualised returns stood at 14 per cent.

Temasek said that it was an active year despite pandemic lockdowns and travel restrictions. It is overall "cautiously optimistic" on the global economic recovery in the short to medium term.

It expects the global economy to recover steadily, encouraged by accommodative fiscal and monetary policy. However, the pace of recovery will likely be uneven across countries, as some struggle with new peaks of infections and slow vaccination rates.

In Singapore, Temasek anticipates manufacturing, financial and technological services sectors to be resilient, with manufacturing benefiting from strong external demand, particularly for electronic products.

In a statement, Mr Hamiyeh said some of Temasek's large investments will help "reposition our portfolio companies for a post-Covid world".

"Our aim is to build a forward-looking and resilient portfolio - one that delivers sustainable economic growth, and at the same time, enables the transition to a low carbon economy."

In Singapore, investments were poured into portfolio companies to prepare them for future disruptions and opportunities, and support transitions to a low-carbon world.

It had, for instance, invested in Singapore Airlines' capital raising efforts as it weathers the tough climate and works towards net-zero emissions.

Temasek also invested in Sembcorp Marine as part of its demerger from Sembcorp Industries.

The demerger is said to enable both companies to independently sharpen their focus in their respective domains, and accelerate their transition as sustainable solutions providers for the low carbon economy.

Asked whether there are plans to restructure other portfolio companies, Mr Hamiyeh said that these are issues left for respective portfolio companies to decide on, as Temasek does not intervene with the companies' day-to-day management.

"However, as a very active shareholder, we do provide our opinions. We do like to think that, from time to time, we have value by providing different perspectives in terms of what we see in the world, what we see other best-in-class companies are doing, and we work with our companies as partners to try to create value for every shareholder," he said.

Some of the key companies Temasek has invested in are critical for Singapore, CIMB Private Banking economist Song Seng Wun told The Business Times.

Given that these companies will likely recover, it makes sense to ensure that they remain viable, especially since these businesses remain relevant, he said.

"Some of the increased investments in its portfolio, like Singapore Airlines and Sembmarine, may represent national strategic objectives rather than just financial returns", said Maybank Kim Eng economist Chua Hak Bin.

Commenting on Temasek's performance, Mr Chua said: "Returns will likely converge to more normal rates as global growth settles at a more sustainable pace."

Meanwhile, Mr Song said that it is important to focus on the longer-term, given that "we are not likely to see this kind of outsized returns" going forward.

Temasek's executive director and chief executive Ho Ching is due to retire from the group on Oct 1. She will also step down from its board that day. She will be succeeded by Dilhan Pillay Sandrasegara, who will concurrently hold his current appointment as chief executive of Temasek International - Temasek's commercial arm.

Responding to media queries on the new leadership, Mr Hamiyeh said that there would be little change when it comes to the firm’s business strategy, given that decisions are made collectively through a strong senior management team. Succession planning is an ongoing process, which Temasek takes “very seriously”, he added.

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