Temasek should do more to offer suitable products for small investors

SINGAPORE-HEADQUARTERED global investment company Temasek’s net portfolio value rose S$7 billion to S$389 billion for the financial year ended Mar 31, 2024 (FY24). Based on marking the unlisted portfolio to market value, the net portfolio value would be S$420 billion.

The investor’s one-year total shareholder return (TSR) was 1.6 per cent for FY24, reversing the previous year’s loss. Temasek’s 10-year and 20-year TSRs were 6 per cent and 7 per cent, respectively. TSR includes dividends paid by Temasek to its shareholder and nets off any new investment made by the shareholder in Temasek’s shares.

Temasek’s performance matters. Under the Net Investment Returns Contribution, the government can spend up to half of the long-term expected investment returns generated by the entities which manage Singapore’s reserves, such as Temasek.

However, Temasek faces a tricky investment environment. Persistent inflation and higher interest rates may lead to potentially lower real returns. Rising geopolitical tensions, rethinking of globalisation, and the costs associated with energy security and energy transition also point to possibly lower global growth and real returns.

Besides tackling investment challenges, Temasek is also pushing hard on sustainability. It targets reducing the net carbon emissions attributable to its portfolio to half of its 2010 levels by 2030, and aims to reach net zero by 2050.

Temasek will have its hands full trying to achieve good returns and ambitious sustainability goals. Still, as Singapore’s population ages rapidly, Temasek should also step up efforts to help locals prepare for retirement by creating suitable investment products for small investors.

Expanding opportunities

Temasek’s then chief executive officer and executive director Ho Ching said in her last speech as its head honcho in late September 2021, that people need to prepare for retirement by saving and investing. She noted how Temasek can help by creating suitable products for individuals.

A Temasek-owned company pioneered developing real estate investment trusts (Reits) in Singapore, and Temasek opened opportunities for retail investors to buy bonds backed by baskets of private equity funds.

Through Reits, individuals can own fractions of chunky non-residential properties that many would generally be unable to own directly. Individuals, who typically cannot access private equity opportunities easily, can access returns linked to private equity funds by buying bonds backed by such funds. 

Investor interest was strong for the recent Temasek-linked public offer of two classes of Astrea 8 private equity-backed bonds.

Going forward, Temasek should actively expand suitable investment products for the local population.

Possible ideas

Temasek can explore launching funds, where it invests alongside institutional and retail investors, to undertake large-scale property development projects here.

Subject to detailed feasibility analysis, such funds could redevelop big ageing strata-held mixed use developments such as International Plaza in Tanjong Pagar or People’s Park Complex in Chinatown.

Let locals who like Singapore property participate directly in large scale development projects. Any development profits plus subsequent recurrent income from redeveloping old buildings can in turn be widely shared among many investors, instead of being concentrated in the hands of wealthy families.

In the Reit market, Temasek could offer investors greater choice by introducing internally managed trusts as well as trusts that will keep their asset portfolios unchanged.

Currently, Reits here are largely managed by external managers, who are often owned by sponsors of the trusts. These managers earn recurrent management fees and ad hoc fees for undertaking, say, asset transactions or property development.  

Investors may appreciate having more Reits that are internally managed, where unitholders own the manager. Internal management could be more cost effective than using external managers.

Reits that hold their assets over a prolonged period and avoid acquisitions or divestments might appeal to investors who seek exposure to a specific portfolio of assets, and dislike dilution from any equity raisings.

As many good businesses are unlisted and hence not open for investing via the listed space, retail investors may also welcome being able to take equity stakes in Temasek’s privately held companies.  

While one can get back one’s principal when holding bonds in private equity-backed funds to maturity, one may seek access to equity exposure in unlisted entities for potential capital gains. 

The share of unlisted assets in Temasek’s portfolio has grown from 20 per cent in 2004 to 52 per cent as at end-March. Over the last 10 years, the unlisted assets generated returns of 9 per cent per annum on an internal rate of return basis, outperforming the overall portfolio.

Perhaps Temasek could bundle some unlisted assets into thematic or geographic focused equity funds in which individual investors, who are not accredited investors, can buy units. An individual needs to meet minimum certain income or net asset thresholds to qualify as an accredited investor. 

Sure, any issuer tapping individuals for funds faces onerous requirements as stringent safeguards exist to protect the interest of small inventors.

Nonetheless, Temasek is uniquely placed to offer individuals a wider range of investment instruments to help them achieve financial adequacy for retirement.

Temasek is much trusted by many locals. It is a seasoned investor with wide exposure to diverse sectors and geographies. The group is financially strong, and has a major presence in the local corporate scene.

Temasek should have the resources to handle compliance requirements involved in tapping individual investors. And Singapore’s regulatory regime should be progressive to accommodate innovative new investment instruments.

May 50-year old Temasek help realise a better future for future generations by achieving sound long-term investment returns, championing sustainability and creating suitable investment products for individuals.