Temasek should offer more information on its activities, investments in emerging tech fields
Its stakeholders are likely to be more forgiving of any headline-grabbing failures if they also constantly hear of its big successes
TEMASEK has evidently endured a tough year. This past week, it reported a total shareholder return (TSR) of minus 5.07 per cent for its financial year ended Mar 31, 2023. Its net portfolio value slipped to S$382 billion, down from a record S$403 billion at the end of its previous financial year.
The weaker performance was not unexpected. The 12-month period in question overlapped an aggressive global tightening of monetary policy in the face of surging inflation. It also coincided with Russia’s military assault on Ukraine, and elevated tension between the United States and China.
Then, there was the implosion of FTX amid reports of mismanagement and fraud. Besides taking a US$275 million hit, Temasek suffered – by its own account – reputational damage as a result of its investment in the collapsed cryptocurrency exchange.
While easing inflation could mean that interest rates are close to peaking now, Temasek could still face the pressure of slowing economic growth in the months ahead. Its latest annual review offered some reasons to not be too pessimistic about its future performance, though, even as it continues investing in cutting-edge sectors.
Against the global market turmoil during its FY2023, Temasek’s Singapore portfolio companies proved relatively resilient. Among the locally-listed companies that supported its performance were Keppel Corp, Sembcorp Industries and Seatrium (formerly Sembcorp Marine) – which chalked up TSRs of 41.7 per cent, 67.9 per cent and 21.4 per cent, respectively.
DBS and Singtel delivered TSRs of minus 3.9 per cent and minus 2.6 per cent, respectively. SIA turned in a TSR of 6.1 per cent, while ST Engineering recorded a TSR of minus 6 per cent.
One standout underperformer during the period was ground handler and in-flight caterer Sats, which delivered a TSR of minus 32 per cent. This was especially disappointing as Temasek participated in the company’s nearly S$0.8 billion rights issue to partially fund its S$1.8 billion acquisition of air cargo handler Worldwide Flight Services.
Temasek’s Singapore portfolio also includes a number of privately-held companies that are household names, including Mapletree Investments, PSA International, Singapore Power and SMRT Corp. These recorded TSRs of, respectively, 3.6 per cent, 7.5 per cent, 5.9 per cent and 6.7 per cent.
Farther afield, some of Temasek’s better-known overseas public-listed holdings delivered varied performances. German biotech company BioNTech, which raised funds from Temasek and other investors during the pandemic, delivered a TSR of minus 26 per cent. On the other hand, financial institution Standard Chartered recorded a TSR of 22.9 per cent.
Shift to private equity
Despite the tough market conditions, Temasek still found suitable investments during its FY2023. It made net investments of S$4 billion – with S$31 billion of investments and S$27 billion of divestments.
Among the more familiar public-listed companies Temasek said it had invested in were global alternative asset managers Blackstone and TPG, and quick service restaurant operator Yum China.
Temasek has also been increasingly gaining access to fast-growing companies in the private equity field. Among the early-stage companies it provided with capital during its FY2023 were Israel-based retail automation platform Trigo, and UK-based artificial intelligence (AI) data platform V7.
Closer to home, Temasek invested in an Indonesia-based truck brokerage platform called Waresix, and a Singapore-based maker of oat milk products called Oatside.
Temasek also took majority ownership in some privately-held companies. For instance, it raised its stake in Element Materials Technology to 88 per cent. The UK-based company tests and certifies products and materials used in the aerospace and energy sectors, among others.
After its FY2023 closed, Temasek agreed to acquire a 41 per cent stake in Manipal Health Enterprises. This will increase Temasek’s aggregate stake in the India-based hospital chain to 59 per cent.
At the end of its FY2023, Temasek’s holdings of unlisted assets comprised 53 per cent of its portfolio. This was up from 27 per cent in 2013. While the privately-held companies are not necessarily less susceptible to hype and overvaluation than public-listed companies, Temasek said it values its unlisted investments at book value less impairment.
“We only recognise any value uplift of these investments upon listing or sale,” Temasek said. “Marking our unlisted portfolio to market would provide S$18 billion of value uplift.”
Among its investee companies that yielded big gains when they went public over the past few years are payments company Adyen, shopping platform Meituan, and games creation system Roblox.
Temasek added that its unlisted assets generated an internal rate of return of more than 10 per cent per annum over the past decade.
Venturing into emerging fields
While the FTX debacle raised questions about the risks of being exposed to cutting-edge technologies, Temasek has not stopped investing in emerging fields.
It has invested in a France-based builder of quantum computers called Pasqal, and a US-based company developing next-generation lithium-ion batteries called Ionblox.
Even more interestingly, Temasek said it has set up ventures to “enable innovation and growth across our ecosystem”. One example is minden.ai, which uses machine learning and AI to enable more personalised and rewarding interactions between brands and consumers.
Last year, minden.ai launched a digital rewards programme – called yuu Rewards Club – in partnership with DFI Retail Group, BreadTalk, DBS, Passion Card, Mandai Wildlife Group, and Singtel.
These ventures form part of what Temasek has dubbed its “development engine”, a 4 per cent segment of its total portfolio geared towards building enterprises of the future.
In my view, Temasek ought to provide more information on these sorts of ventures on an ongoing basis. Other than being a very interesting segment of its investment activities, this is also an area where the potential returns are unclear.
By explaining precisely how it is exploiting emerging technologies and new innovations while controlling the risks, Temasek would not only be raising its profile as a big institutional investor, but also insulating itself from the fallout of inevitable flameouts along the way.
Temasek’s stakeholders are likely to be more forgiving of its headline-grabbing failures if they also constantly hear of its big successes.
