Investing in disruptive technologies such as blockchain - and the cryptocurrencies that run on its infrastructure - might be a high-risk game, but as AsianInvestor reported a few days ago, Singapore's institutions are boldly backing this new market.
Both the Singapore sovereign investors, GIC and Temasek are at the forefront of institutional allocations to the cutting-edge technology.
GIC has a stand-alone unit in Silicon Valley making investments in disruptive technologies while Temasek has been involved in many of the biggest sovereign VC investments in the technology sector.
Temasek's interest in blockchain is now backed by a firm commitment in terms of talent and the scope of its remit. In 2018, the firm set up two business development areas focused on artificial intelligence and blockchain. In 2019, Temasek appointed Kevin Lim - who cut his teeth as an associate director at Standard Chartered - as director of blockchain.
Timothy Tsui, chief investment officer at Hong Kong family office Arbutus - and a firm advocate of blockchain - said that Temasek’s activities are a clear indication of Singapore’s intention to carve out a large slice of the regional fintech pie.
“By appointing Kevin and setting up this dedicated department, they are definitely looking at actively investing. They are trying to figure out and keep abreast of it, in the expectation that it will be very disruptive," he said.
That said, Temasek has clarified that Lim was employed at Temasek before the blockchain team was formed and that he is part of a larger team looking into blockchain-related opportunities.
A spokesperson for Temasek told AsianInvestor that while cryptocurrencies have matured sufficiently to fit into some companies' investment portfolios, the investment company did not own any at the moment, and have also not bought or sold any.
The internal team decided that one of the best ways to get involved was to pilot some blockchain infrastructure-based projects, the spokesperson said.
"We saw that there were emerging technologies that could really impact how we function as an investor and potentially disrupt the companies in our portfolio."
Essentially, Temasek’s blockchain business currently has three focus areas. The first is centred on digital identity and creditials such as digital wallets and health passports. To that end, Temasek created a company called Affinidi, a start-up that enabled the creation of portable digital identities, the simplified issuance of digital credentials and the selective sharing of verifiable data. Airlines and hotels are already using the technology to verify an individual’s Covid status, for example.
The investment company created Affinidi because the digital identity and credentials space was so new and there were no suitable companies that could meet Temasek’s value tests at that point.
"So we started up our own, by putting together different people within Temasek. We created a whole new company, we hired people and now the company (Affinidi) is independent. What’s exciting about a lot of the work that’s being done in this space is that there is no fixed way of finding a solution," the spokesperson said.
Another focus area is programmable money,with one of the biggest milestones being Temasek’s participation in the Diem Association, a global initiative with the intention to create blockchain-based retail payment solution. The project was founded by Facebook and is still in gestation, with preliminary discussions being held with various international stakeholders.
"There are a lot of people at the table and regulators in different countries to be consulted. It’s instructive for us to be part of the conversation, in terms of being able to better understand the challenges facing various stakeholders for such an undertaking, and to then collectively work towards a solution."
The third subset is the ability of blockchain to affect existing market infrastructures, in particular payments and settlement for bond issuers and funds. For instance, Temasek is working with HSBC, DBS and JP Morgan to develop streamlined settlement processes.
"We want to create a digital ledger that is open and transparent, which cuts down on additional cost and the time needed to go through multiple clearing houses and regulatory environments," said the spokesperson.
"There will be banks that don’t want to participate in such a payments platform for various reasons, and it’ll be an ongoing process to engage them and onboard them. We are fortunate to have like-minded partners embarking on this long-term journey with us to transform existing infrastructure."
When Temasek is looking at a new space, one of the ways it dips its toes in is through fund investments, and this could be the way forward for the company to look at increasing its exposure in the crypto space.
"What you will see is a lot of investment activity around creating pilot projects and joint ventures. With such potential transformation, you need long term funds and as a long-term investor, Temasek is willing to back a long gestational period. Which is why, with a lot of these areas, we are starting from scratch, either with partners or on our own."
Arbutus’ Tsui added that Temasek's interest in the fintech sector was far-ranging and was not simply aimed at developing a blockchain business within the organisation.
“They simply see this as an up-and-coming industry, with the adoption of non-fungible tokens and other products,” he said.
“The tech platform companies such as Cardano, Ethereum and Solana are the ones that Temasek are interested in," Tsui told AsianInvestor. "Also, technology companies that are trying to do checks on investments. So, for example, trade analysis or security and KYC (know your customer) checks on existing chains.”
This article has been edited with clarifications on the Temasek's spokesperson's quotes and several details about the firm's blockchain strategies.