Aloysius Foo
A Temasek wrapped up in a mystery within the abyss of the Singapore economy
Public displeasure should be directed correctly, for it to be effective. The recent revelation, that Temasek Holdings has lost 31 percent of its net portfolio value between March and November 2008, is initially shocking, given its supposed reputation as a professional and long-term investor. Temasek also seemed to have made a wrong judgement on hindsight, when it injected capital into Barclays and Merrill Lynch.
Understandably, especially during this recession, Singaporeans are concerned about Temasek’s performance. It is for a very good reason; Singaporeans believe they have a share in Temasek’s money through the sole shareholder, the Ministry of Finance.
Firstly, Temasek’s performance is not very shocking if market indices elsewhere are examined. Temasek parks a third of its investments in Singapore, holds stakes in 7 out of the 10 largest companies here, and nests another 22 percent of its portfolio in China, South Korea and Taiwan. A sizeable chunk is also held in OECD economies (see below). As the name ‘Holdings’ implies, Temasek owns stocks in companies, and they don’t keep tonnes of cash in its drawers.
Figure 1: Temasek’s investment portfolio by geography (Source: Temasek Review 2008)
Figure 2: Performance of major market indices (Source)
Hence when markets fall, it is not surprising to see the value of Temasek’s portfolio falling as well. The figure above shows major global stock indexes – nearly all of them have dropped more than 30 percent in 2008, with some losing more than 40 percent. The (not shown in figure) MSCI (Singapore) and MSCI (Asia ex-Japan) stock indices are good benchmarks for Temasek’s performance: 31 percent loss against the 44 and 45 percentage losses suffered respectively. Furthermore, Temasek’s drop “is exactly in line with the MSCI world share index”.
Temasek is also not the only ‘sovereign wealth fund (SWF)’ to lose money. According to The Economist’s report on 22 January this year, “Gulf foreign-reserve funds and SWFs (the distinction is often blurry) lost $350 billion last year, or 27% of the value of their assets”. Though Temasek has failed to produce results, it has not failed spectacularly, giving assurance to the public their money has not been squandered away. In fact a 31-point loss is arguably a better performance, given the context of the market.
Finally, Temasek is not plagued with structural financial problems. While it may have bled money in Barclays and Merrill Lynch, and also encountered problems with Shin Corp and the Indonesian government, it has made other sound investments too, such as in the Bank of China and China Construction Bank. Its losses are likely to be reversed once the recession ends, the banking system is fixed, and investors are once again confident in the markets. Public anger directed at Temasek over its losses, if any, is unreasonable – Temasek is not an immediate failure.
Pointing your concern to the right way
While the Western financial world fears an onslaught of SWFs with hidden agendas, Singaporeans fear that Temasek has skeletons in its closets. There are three broad categories of problems which Singaporeans can express some reasonable suspicions: Temasek’s lack of transparency, soundness of its investment strategy and Temasek’s relationship with the giant local companies here.
The first problem is a recurrent theme. A recent Wall Street Journal article summed it up nicely –
“it has never provided historical financials to back up its claim of an 18% compounded annual “total shareholder return” by “market value,” nor has it released detailed results showing how money flows among its subsidiaries, the holding company and its government shareholder. Temasek outlines its compensation arrangements but doesn’t say how much it pays its top executives”.
What is the definition of ‘transparency’? Should Temasek publish its consolidated financial report like any other listed company, not just its summary – which is already quite detailed in stating its goals and investments? What stuff do Singaporeans want to see which is not publicly available?
The essence of this transparency issue is not regarding Temasek’s financial status, but more on its vague goals and the perception that it is a government-run body.
Temasek should be transparent for its own good – a pragmatic and financial purpose. Together with the GIC, they can detail their internal workings, goals and strategies to create a force of certainty and stability in the financial market. If Temasek, for no known reason, decides to give up its stake in a company, it will lead to speculations, rumours and uncalled panic, and Temasek will eventually be affected. More importantly, political tensions can be reduced in sensitive investments, as it has learnt in Thailand. Surely such benefits of transparency can better achieve its bureaucratically-crafted goal, “maximise long-term shareholder value as an active investor and shareholder of successful enterprises”?
The second problem is the soundness of Temasek’s investment strategy. Some have criticised it for pursuing a ‘high-risk strategy’, and so expose Singaporeans’ money to unnecessary losses. Temasek is not a low- or high-risk investor. Stashing money in fixed deposits or bonds are safe, but may not secure high returns. Similarly, pumping money into hedge funds or real estate speculation may offer higher returns, but Temasek is unlikely to be doing that. It is more likely Temasek is a mid-risk investor which made some bad decisions in Barclays and Merrill Lynch (Temasek’s losses cannot be fully attributed to just these two banks; as mentioned, it depends on the performance of stock markets worldwide).
Temasek holds stakes in companies in diverse sectors, ranging from financial services to consumer lifestyle to technology. Critics will jump at this again, arguing that diversification ought to act as a shock-absorber. However, 2008 was an unprecedented year where everything seemed to be going downhill. Even diversification may not work in such exceptional times, when confidence level is zilch in the market; but it will probably work once the economy recovers.
With the appointment of Charles Goodyear as chief executive, it looks set to diversify into asset classes such as commodities, where he has had experience. Benefit of the doubt can be extended to Temasek over its investment strategy, and Singaporeans need not be anxious that aggressive, high-risk investments will bleed them.
The third problem is the consistent link drawn between Temasek and companies where it is a stakeholder. Singapore’s commanding heights – the telecommunications, energy, industrial, transport and banking sectors – are anchored by local firms such as Singtel, Mediacorp, Singapore Power, SembCorp, PSA, SMRT and DBS. Some of these local firms were originally owned by the Singapore government to stimulate the growth of new industries, which then cut a route for private capital once viability was shown. As the economy grew, the government transferred part or all shares to Temasek, which is supposed to be an investment manager for the Ministry of Finance.
Temasek has stated clearly it is not involved in the commercial running of its companies. The evidence suggests so: in 2002, a battle was fought between DBS and 98 Holdings for NatSteel. Though Temasek owned shares in all three firms, there is no evidence to show it was the puppet master of this saga. Furthermore, Temasek firms such as SembCorp and Keppel compete actively against each other in their respective fields. Yet there are lingering doubts, especially when one of Temasek’s ‘investment themes’ is to ‘deepen comparative advantage’ – one can guess it means the ‘national champions’.
Most importantly, there is a perception the government directs Temasek in their investment ventures. Temasek and GIC are 5th schedule companies – their CEO and board members are appointed by the President (but this can be override by two-thirds majority in Parliament, which is not difficult to do so). Most people believe that because Temasek reports to the executive, it is likely to carry out its orders. This image problem has been compounded by Temasek’s lack of transparency.
Some Singaporeans are quick to jump at this – shadowy and subtle strokes to manipulate the economy behind the curtain, all in the aim of entrenching political dominance. Secondly, critics of local firms claim they crowd out small players. What is more significant is that the image problem may deter foreign partnerships or takeovers, limiting the growth of local firms.
The abyss of the Singapore economy
Some of these worries are unfounded. For a start, claims that Temasek-linked/Government-linked companies crowd out small players may be false. Mediacorp, PSA are natural monopolies e.g. one firm is able to satisfy the entire market at lower costs than two firms. Remember the Mediacorp and SPH forays into each other’s market? Small and local players are unlikely to take on Singapore Zoo or ST Technology anytime, given the characteristics of their industries which require high capital outlay.
Singaporeans should be more rightly concerned at the government’s tendency to pick winners. The government’s current role in the economy is most prominent in their attempts to nurture dynamic comparative advantage in promising industries. Other countries do so through protectionism or creating state-owned enterprises to monopolise the industry, but Singapore does it through fiscal incentives and infrastructure investments to attract FDI. Electronics, pharmaceuticals, tourism, digital media etc – these industries are not grown from the bottom, but deliberately nurtured from the top.
The problem with this is not the government’s inability to pick winners – pharmaceutical output was partly responsible for vigorous growth before last year – but economic development in Singapore has reached a stage where orderly planning may not lead to the next frontier. Technological innovations and capital stock accumulation are required to expand the economy’s productive capacity; attracting FDI has done a fine job, but the next step must be taken. Singapore needs to unleash the local, so-called ‘creative forces’ for long-term growth.
Temasek is a prime example of the government’s belief of orderly mobilisation of resources to tap on market forces. Temasek’s grip on some local giants such as Mediacorp and Singapore Power may be essential for national security reasons, but ownership and control of the vital companies by foreign firms can be limited through regulations. But from a commercial perspective, Temasek owns shares in them simply because they are profitable. Not everyone believes so, again, due to their image problem of being government-directed.
Temasek and the local giants symbolise the sometimes unfathomable economic thinking of the government. On one hand, it says it does not interfere in the commercial running of national champions; on the other hand, its continued stakes in them evokes a nagging feeling the government believes such firms should still be tied to their aprons, for unknown reasons. The Singapore government combines a strange mixture of socialist and free-market thought in the economy –national champions, state-led planning, heavy public subsidies on housing, healthcare and education; free-trader, fiscally conservative and aversion to welfare as to polyesters.
To be sure, Singapore’s development can be identified as ‘dirigisme and free markets’. But it is time the state reduces its direct influence. Signs have been encouraging; the government decided on two casinos, and both are now being built by foreign firms, not TLCs or GLCs. The ‘creative forces’ can come from both local and foreign, but it’s unlikely they will come from the government.
Likewise, the public should not waste its energy on the short-term losses of Temasek, but see the greater picture: Temasek as a symptom of the government’s forceful belief only it can secure Singapore’s economic future. It is time for the government to share the steering wheel with the private sector, and take a backseat, instead of driving the economy into their chosen road.
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“Case in point; Temasek owned “Surbana” which is a corportised entity from HDB. To sustain survival, Surbana was granted monopoly by the govt on the design & supervision of public housing, and thus inadvertently weeds out greater opportunities for a large pool of private sector architects & engineers to partake in the public housing bldg.
This monopolistic practice cripples creative competition and also leads to inbreeding of limited ideas.”
I’m unsure of Surbana’s history and its ‘monopoly’. But I think because it was sliced off from HDB, it still maintains this close tie. This is one good point to note though.
#44 makes a good point; why SWFs like Temasek and GIC choose to be discreet. Actually Temasek is considered to be among the most transparent SWFs, along with Norway Govt Pension Fund.
Since many, almost all, have mentioned ‘transparency’, then I’d like to ask – what things do you need to know which aren’t already publicly available? It’s easy to shout out terms like ‘transparency’ and ‘accountability’, but we nidda define these before we can know what we want.
For starters, I think Temasek can reveal more on how much they pay their executives. Purpose: to find out if their system of incentives is working. Right now their ‘Compensation Framework’ in Temasek Review 2008 is kind of confusing. They have sufficient room to add more info regarding this, which can assure or agitate S’poreans if their mgmt’s interest has been misaligned, resulting in ‘bad’ decisions. Accusations hurled at them, that they are ‘incompetent’, are pretty unfounded unless we can examine this factor.
No 45 randomnessinmind,
Looks like you classified Temasek losses of $58 billion as an ordinary mistake. Gee, you sure have dangerous value.
To treat this $58 billion losses as no big deal is very dangerous.
If they can lose 31%, they can also lose 100%. If we don’t condemned them when they lose 31% it may be too late when they lose 100%. It will be the end of Singapore and Singaporeans. The choice is clear. Punish them now to prevent further losses or treat this as a small error and encourage them to take bigger risks endangering our future.
This humongous losses is a warning to Singaporeans that something is seriously wrong with the management of their reserves. How can we allowed them to take so much risks ? Singaporeans must pressurised the pap governemtn to act to reduce the risk our managers are taking with our reserves. The risk perimeter and control must ge tighten to limit any future losses. This must be rectified before they lose all our hardearned money.
We have seen how the managers of Western FIs have bankrupted their institutions through reckless risk taking to enhance their yearly bonuses. This must not be allowed to happen to the management of our reserves.
No 53.
We need to know exactly how much is in our reserves. As it is we only know the portion of our reserves being managed by Temasek and MAS. How much are there in GIC. How much did GIC lost in the same period as reveal by Temasek.
In the case of Temasek we need to know more about their risk perimeter. Before they make an investmen, do they set a maximum lost which they are prepared to take ? Do they limit their losses ? What % of the losses are they prepared to take before cutting lost ?
I think SIngaporeans should be more than just concerned!
Weren’t some of the bad investments done by Lee Hsien loong’s wife? Where is the accountability? Is Temasek private or public? If the bulk of investment funds came from CPF cash, then who is accountable to the people?
accountability? Hello…this is singapore…i don’t think we can find tt here
Ultimately, we all will be made suckers!
Perhaps the solution to all of Singapore problems is to employ an entire ang mo cabinet and president like the starting of it in Temasek; what is “chip” ?
The ang mos will come shamelessly as the pay they are getting here is unheard off for themselves in their own bankrupt countries.
Dear #46 smallvice585,
SWFs are quite a recent development in the financial world. They are still feeling their way around the markets.
Because their assets are actually national assets, the funds that they use are much bigger than privately-run funds. Some feel that this gives them an unfair advantage. Further, foreign Govts are wary of such funds taking big stakes in their national assets and essential services. There are suspicions about their investment motives which may have political undertones.
So, because they are a different creature from listed public companies, the usual rules of disclosure and transparency may not apply. This uncertainty is felt not only in world markets but by the SWFs themselves.
Given such uncertainty, is it surprising that SWFs are conservative in their disclosure policies?
This nightmare will not go away.
Our ruling party always preaches continue Good Governance
But the process by which decisions are implemented is in actual fact ‘In Denial’
>52 eternalhap
u’re just repeating the problems or explaining them away. you don’t need a textbook defintion of transparency and accountability to recognise that Sg govt and its agencies are one of the most opaque ones around.
darling of dictatorships, but a laughing stock of the developed world.
The argument against transparency is wrong. All U.S. mutual funds publish their entire portfolio. Investing is not a game I win, you lose. The only advantage you may have is that you know before you are going to invest what you are going to buy – this way you can best time your purchase.
smallvoice585,
SWFs are not recent development. One of the oldest SWFs in the world is the UK’s Commonwealth Development Capital (CDC) Group. CDC is jointly owned by the UK’s Foreign and Commonwealth Office (FCO) and the Department For International Development (DFID). CDC Group was founded in 1948 to extend and continue UK’s influence in its former colonies’ economy. The West which created the first SWF now fears what it had invented. In asking Asian SWFs to be transparent, we are also demanding the West to do the same too.
@ Harry:(53,54)
Thank you! Really! Thank you! Your posts are the type I was looking for!
I was losing hope of anyone giving any feasible opinions…and getting quite bored at many mindless ranting above.
And to clarify a few things with the guys here….I NEVER said recouping losses would be easy, my only point being it’s something we’re stuck with now.
#50)
“Do not expect some magician to bring a person back to life if you have chopped off his head. Talking about solutions somemore.”
You’re telling me that you’re gonna just leave his corpse to rot. For a solution doesn’t necessary means reviving him, it could be hiding his corpse so no one finds out. I just want us to minimize our damages, not cure them.
@Harry, again:
Hahaha…..perhaps you’re right that I have dangerous values…but what you’ve suggested was what I’ve been trying to put across to the others in words. But I’m bad at thinking up ideas…and probably just as bad in accounting as I am with my english.
” Singaporeans must pressurised the pap government to act to reduce the risk our managers are taking with our reserves. The risk perimeter and control must ge tighten to limit any future losses. This must be rectified before they lose all our hardearned money.”
Agree with you totally on this…but I have no clue what you mean when you speak of either punishing them or doing nothing to encourage them to take more risks. Because punishment comes in many different forms, and voting them off could be what you’re thinking, and what I could be also thinking.
The questions you have….are you already getting to the answers? Or perhaps we need a bigger medium to get these questions answered? Or you’re waiting for the bigger personals to raise these during a parliament session…is there anything I can do? I’m a lazy bum, but if it’s worth it the People might just take notice.
“You’re telling me that you’re gonna just leave his corpse to rot. For a solution doesn’t necessary means reviving him, it could be hiding his corpse so no one finds out. I just want us to minimize our damages, not cure them.’
Remove the culprit. That is the solution. Removing the corpse is only removing the symptom.
‘Minimize our damages’ will still leave the culprit around. And mind you, with pre-existing pysche, further damages may still result.
lol, you’re telling me off for talking about solutions when you just gave one yourself.
And yea, that’d probably be the fastest way to save more lives..but we’re not talking about a real murderer now, for a murderer need not be replaced by a better one, but a government, yes. We probably need a better one.
Now don’t take my comment too seriously…I’m not looking for an argument on the two of us talking solutions or what not, let’s go back to our current problems an how we can solve them.
And I thank you for your time…I wasn’t expecting a reply from you.
“I was losing hope of anyone giving any feasible opinions…and getting quite bored at many mindless ranting above.”
Hey, perhaps, this thread is not suitable for you if you are looking for “feasible opinions”.
No loss, no need to search for “feasible opinions”.
Don’t create dirt in the first place so that you won’t have the opportunity to look down on those cleaners who may not be skillful enough to clear your dirt.
“Now don’t take my comment too seriously…I’m not looking for an argument on the two of us talking solutions or what not, let’s go back to our current problems an how we can solve them.
And I thank you for your time…I wasn’t expecting a reply from you.”
The strange thing about internet is that you get screwed whether you like it or not. Not real lah. Analogy lah.
How can we solve the problem ? Well if those premium-rated sirloin steaks cannot solve our sickness if it is not our sickness. You are probably in the wrong steak house.
Dear #63 smallvice585
Yes, you’re right about UK’s Commonwealth Development Capital (CDC) Group being founded in 1948. But it is quite a different animal because its aims are different. It was borne out of Britain’s reluctance to relinquish its influence in its former colonies.
Present-day SWFs are ostensibly behaving like pure commercial entities, no different from any mutual or hedge fund. In fact, if you had been reading the papers over the last year or 2, there was talk of establishing international guidelines on the conduct and investment policies of SWFs.
If you understand that the commercial viability of Temasek and GIC are intimately tied to our geopolitics and national survival, you will not be screaming for unrestricted transparency from our SWFs.
If you have just lost a high-stakes game of poker, would you tell all the players at the table how much more money you have left in your brief-case? Would you lament aloud what mistakes you have made in that last game? No! The smart thing to do is to smile, stay cool, take notice of the lessons learnt and give the others the impression that your brief-case is actually quite bottomless!
Transparency must be examined from an economic perspective. By politicising the whole issue, one is just using it as a stepping stone to pursue his political goals, which may be misaligned with the long-term goal of Singapore.
>70. that’s a naive perspective of what is political. LOL
smallvoice585,
If present-day SWFs are commercial entities, why are they being scrutinised as politically motivated government funds?
69) smallvoice585 on February 27th, 2009 5.33 pm
“If you have just lost a high-stakes game of poker, would you tell all the players at the table how much more money you have left in your brief-case? Would you lament aloud what mistakes you have made in that last game? No! The smart thing to do is to smile, stay cool, take notice of the lessons learnt and give the others the impression that your brief-case is actually quite bottomless!”
Yeah, you are right. And as most of us already know, it further reinforces that investment = gambling. So why not give it to us and let us do it ourselves. Individual losses are isolated and small. Some of us (those poor ones and on basic survival mode) may even use it not for gambling but for basic essential items.
Talking about staying cool when your chips (and ours also) are down, you will only get to know it in the end when it is really empty (perfect transparency) with heavy costs and no way of rectification. If it is your chips alone, who cares. If some of the chips are also mine (e.g CPF), I definitely care.
So what do you think of the coolness of those investment banks of the past, very cool right ?
70) eternalhap on February 28th, 2009 12.03 am
“By politicising the whole issue, one is just using it as a stepping stone to pursue his political goals, which may be misaligned with the long-term goal of Singapore.”
Everything in life is about politics and self-interest. It is a matter of semantics and scale lah. You convince (politicise) by focusing on certain point of your advantage on specific matter lah.
So what do you think of the political goals of any incumbent party in the whole world or our country. Don’t they politicise matters in order to cut their opponents. Or maybe you prefer they tell the story of “Sleepy Beauty”.
The people must know all this and be clear minded on whether the politicised issue is indeed serious enough affecting his own personal interest in such a way as to merit serious consideration in the way he makes his decision in the ballot box.
i agree with the above commentatr. i think it singaporeans’ inability to recognise what is political is symptmatic of of the govt’s many years of depolitizaition. obviously the outcome of a successfulyly brainwashed citizen is he/she think his /her govt is the best
Finally, he acknowledge the weakness in Export model.
I have read many who opinionated the implicit weakness in such a model that existed for 40 years at least.
I feel that this 40 years, a solution would have been developed to lessen drastically the reliance on export. Yes, based on small population, Import economy is difficult. But then solutions are meant to solve diff problems. Talents are paid to do such a job.
Dear #72 “smallvice585″,
In a way, our SWFs want to have their cake and eat it too. They hope that the markets will not discriminate against them and accept and trust them like any other institutional investors based on purely commercial considerations. Yet, they want to justify their secrecy by appealing for understanding in their role as guardians of national assets. So, what you are witnessing is market resistance to such persuasions.
Dear #73 “To smallvoice585″,
Yes, investing is ultimately a form of gambling, as long as there is no guarantee of profit or gain. In fact, life is one big gamble. You step onto the street – that’s a gamble. You marry a girl – that’s a gamble. You buy a 2nd-hand car – that’s a gamble too. So, gambling is not such a dirty word after all. But, if you don’t step onto the street, you will be house-bound; don’t marry the girl, you’ll never know family bliss; don’t buy the car, and you’ll not experience the joy of driving the BMW! That’s life – no venture, no gain!
An old man said, “IT’S THE PEOPLE’S MONEY! Of course important la! Lost so much you know?? If I don’t pay income tax, they come and catch me, summon me, sue me to court!! Now they lose people’s money, who to catch?!”
60) TheTruth on February 27th, 2009 12.16 am This nightmare will not go away.
Our ruling party always preaches continue Good Governance
But the process by which decisions are implemented is in actual fact ‘In Denial’
100% TRUE To The Core !!!!!
AF said:
“Understandably, especially during this recession, Singaporeans are concerned about Temasek’s performance.”
Questions have been asked in Parliament about Temasek/GIC for a long long time: JB Jeyaretnam asked about GIC in 2001 among others.
Before this financial market meltdown since around end of 2007, NMP Eunice Olsen had also made a speech in Parliament expressing concern about Temasek’s performance especially in the light of the Shin Corp debacle.
What kind of replies did MPs get? Essentially the answers were, we (the govt) don’t give a damn to the questions.
AL said:
“Temasek is also not the only ‘sovereign wealth fund (SWF)’ to lose money. According to The Economist’s report on 22 January this year, “Gulf foreign-reserve funds and SWFs (the distinction is often blurry) lost $350 billion last year, or 27% of the value of their assets”.”
Why limit to the performance for the “last year” only?
#39, Anon has rightly pointed out that Temasek also owns unlisted companies like the power stations which were sold for a total of about S$12 billion; PSA etc.
It is therefore totally misleading to compare Temasek’s performance with the MSCI or whatever indices which happen to be convenient advantageous to Temasek.
AL said:
“Finally, Temasek is not plagued with structural financial problems. While it may have bled money in Barclays and Merrill Lynch, and also encountered problems with Shin Corp and the Indonesian government, it has made other sound investments too, such as in the Bank of China and China Construction Bank.”
Temasek’s purchases of Bank of China & China Construction Bank were made pre-IPO and many other financial institutions also made money eg, Bank of America, UBS, RBS………so no plus for Temasek.
As for Merrill Lynch, Temasek did not just “bled money”, it is a dead loss if not rescued by the US taxpayers.
Thank guys . what a goldmine of information and helpful to my own research of a SWF.
Yet so many unanswered questions:
What are the real reasons behind Ho Ching’s resignation?
Why is Dhana able to stay on ? perhaps he is fighting for his life there now.
Should not Oei Hong Leong be appointed an Advisor to Temasek ? Is not he a foreign talent too? and a proven risk taker who is also successful, and a donor to educational institution, and youth leadership development.
Temasek ” see bo liao” ,after all these years, they still have not learned much except from western consultants and see what they are led into!
What a pathetic state of affairs for a Singapore SWF.