Singapore's state investor Temasek posted 24.53% returns for the financial year ending March 31, marking the highest shareholder returns achieved by the fund since 2010.

The fund's latest results suggest that its strategy during Covid-19 paid off, note experts, who also highlighted the state investor’s focus on concrete sustainability goals rather than a generic environmental, societal and governance (ESG) rhetoric.

Temasek's 24.53% shareholder returns for the financial year marked a recovery from the negative 2.28% posted in the previous financial year, according to its annual report released on Tuesday (July 13). 

“As global equity markets rebounded strongly from the lows of March last year, we saw investment returns boosted by shifts in behaviour resulting from Covid-19,” said Eddy Ho, director of the enterprise development group, in an accompanying video. “Our portfolio also benefitted as several of our unlisted companies went public,” he added.

Holdings to go public during this period include US food delivery firm DoorDash, home-rental service Airbnb and Chinese video-sharing app Kuaishou. However, Temasek is also an investor in Didi Chuxing, whose share value tumbled last week following Beijing’s clampdown on Chinese tech stocks.

Temasek’s net portfolio value also hit a record S$381 billion ($282 billion), up from S$306 billion the previous financial year. The new assets under management (AUM) puts Temasek as the world’s 12th largest sovereign wealth fund, according to Global SWF rankings.

Gary Smith, Sovereign Focus

Gary Smith, managing director of UK consultancy Sovereign Focus, is not surprised by the results. He says Temasek has benefitted from numerical effects of its financial year ending in March which “captured the whole of the equity market recovery”.

In the same way, the previous year's results suffered from the start of the financial year coinciding with the onset of the coronavirus pandemic. He expects less volatility in future results as stability returns to equity markets.

Global SWF managing director Diego Lopez also lauded the results: “It is a very strong result, especially considering the 24% weight of Temasek’s portfolio in Singapore, whose economy contracted by 5.8% in 2020,” he said.

Other global investors closing their fiscal year in March include Japan’s Government Pension Investment Fund, which reported returns of 25.2%; Canada Pension Plan (20.4%); Public Sector Pension Investment Board (18.4%); and the New York State Common Retirement Fund (33.6%).

“Compared to them, Temasek is a strategic investor who may have not benefited as much from the rally of US stocks among others, so again, I think the 24.5% return is very robust,” Lopez said.

Temasek invested a record S$49 billion over the last 12 months, in line with a report published in March by IE University's Center for the Governance of Change which placed Temasek as the world’s most active state investor in 2020. Temasek also divested a record S$39 billion. This compares to S$32 billion and S$26 billion invested and divested respectively for the previous year.

“The figure of investments (S$49 billion), a 50% more than the previous year, shows strength and [that] they knew how to take advantage of opportunities in the market during the year,” Lopez added.

SECTOR COMPOSITION

In terms of the composition of its focus sectors, financial services continued to lead at 24%, though this is remarkably lower than the 36% of portfolio it represented in 2011. Telecommunications, media and tech are second place at 21%, rather unchanged from 2011 (22%).

Life sciences and agrifood had the biggest increase over the last decade, from 1% in 2011 to 10% in 2021. Temasek has been an active investor in the alternative proteins space, backing the US’ Impossible Foods, Singapore’s Next Gen and Australia's V2food.

 
Changing composition of portfolio. Source: Temasek
 
SUSTAINABILITY

Temasek also highlighted its strides in sustainability. In the past year, it partnered BlackRock to launch a climate-focused venture capital (VC) firm; picked up a $500 million stake in impact PE firm Leapfrog in and hired Steve Howard as its first chief sustainability officer.

Smith pointed out a lack of mention of the term “ESG” in the latest report. In contrast, a search shows the report mentions the words “carbon” and “sustainable” 10 and 8 times respectively.

For Smith, this is a sign that Temasek and other asset owners are starting to shun the term ESG over more granular topics and pressing issues. “We have a climate crisis; we don’t have a governance crisis,” he said.

Earlier this year, GPF’s secretary general Srikanya Yathip told AsianInvestor she preferred to focus on specific issues like climate change and human rights rather than ESG, which she sees as too broad a term.

Incoming CEO Dilhan Pillay

The latest results announcement will be Temasek’s last with chief executive Ho Ching at the helm. Ho is to step down on October 1 and will be replaced by Temasek International chief executive Dilhan Pillay.

Smith doesn’t see this changing Temasek’s focus: “They will continue to accelerate their move into direct investments and focus on their four themes [digitisation, sustainable living, future of consumption, and longevity].”

Experts with whom AsianInvestor spoke earlier in the year agreed the change would likely mean evolution rather than revolution.

This article has been edited to state that financial services made up 36% of Temasek's portfolio in 2011. And earlier version of this article put the number at 35%.