Singaporean state investment company Temasek revealed a 2.28% loss on shareholder returns and a S$7 billion drop in assets for the year to the end of March, its first since the 2015-2016 financial year, as the asset owner suffered from the impact of value drops on assets in its portfolio amid the nadir of the Covid-19 pandemic’s impact on markets.

Temasek’s assets fell to S$306 billion ($214 billion) on March 31 from S$313 billion a year earlier. Its fall in shareholder return compares poorly with the 5% annual rate it has supplied over the past decade and the 6% it offered more than 20 years.

Temasek, however, is far from the only asset owner to struggle during what proved a painful first quarter of 2020, as Covid-19 afflicted stock markets across the world.

"The results are not surprising considering they are for March 31... other funds reporting at that date such as GIC, BCI and PSP have lost more money (in US dollar terms)," said Diego Lopez, managing director for Global Sovereign Wealth Fund Capital, answering emailed questions from AsianInvestor.

In its statement about the results, Temasek said that it remains cautious about the current market environment. However, it identified innovative and disruptive technology companies and China assets as areas of opportunity going forward. The company is heavily equity-focused; credit comprised just 5% of its net portfolio value, or 12% of liquid assets. 

Lim Boon Heng

It has also increasingly placed an emphasis on more sustainable investing, and Lim Boon Heng, chairman of Temasek, noted that the company would keep investing and acting as a steward “with the next one, two or three decades in mind”.

In the more immediate term, Temasek will need to navigate both the impact of Covid-19 and the ongoing rivalry between China and the US. Michael Buchanan, head of macro strategy, portfolio strategy and risk group at Temasek, noted that there are many risks around the latter and also the coming US election, which “would likely create a more challenging environment for long term investors and asset owners”.

Michael Buchanan

He added that Temasek is looking with some optimism at China, where Temasek believes overall monetary and fiscal policy “will stay accommodative to support the economic and job recovery”.

Temasek has invested 29% of its portfolio in China-related assets, which is now its largest single geographic exposure. That compares to 26% a year ago.

At 24%, Singapore has dropped for the first time to become its second-largest geographic exposure. The investment company has assertively moved its portfolio from being majority invested in Singapore state-linked companies but retains a sizeable position in such businesses.

All-told, Temasek has 66% of its portfolio based in the Asia region. It noted, however, that it had raised its North America exposure to 17%, up from 15% in June last year. It cut its Singapore allocation from 26% in 2019, reduced its Australia and New Zealand exposure from 6% to 5%. 

SECTOR FOCUS

Sectorally, Temasek’s largest investment continues to be in financial service companies, but this fell from 25% of its portfolio in 2019 to constitute 23% as of March. However, it has been eager to raise its technology investments, which has generally proved to be a smart move amid the Covid-19 pandemic. It said its telecommunications, media and technology investments rose from 20% in 2019 to 21% this year. 

Recent ones include into US property and casualty insurance technology company Duck Creek Technologies, ManoMano, a European home improvement online marketplace and MiningLamp, a data solutions company in China. It also invested in Kuaishou Technology, a short video social platform.

Indeed, Temasek has been an assertive investor into different companies. The Sovereign Wealth Fund Institute noted in a March 2020 report that Temasek and peer GIC had traditionally led sovereign wealth funds in venture-style investments, although others have since accelerated their activity too. Singapore SWF-backed venture rounds constituted 3% of total global deals, according to Sovereign Wealth Research.

Temasek itself was responsible for 82 deals in the 2018-2019 year, according to the SWF Institute, making it by far the most active asset owner tracked by the institute. "While Temasek was a net seller in (fiscal years 2017 and 2019), they've invested more than sold this year again – perhaps a 'never waste a good crisis' approach?" noted Lopez. 

Temasek said that it had also focused on “building new capabilities such as artificial intelligence, blockchain and cybersecurity,” noting that “these are new business opportunities which can provide our portfolio companies and ecosystem partners with a pool of talent and a suite of services”. And Buchanan said he anticipated that technology services in Singapore would “remain resilient amidst the shift in lifestyles such as remote working arrangements”.

Part of its blockchain efforts involved working with the Monetary Authority of Singapore and JP Morgan to develop a prototype for multi-currency payments based on ledger technology. Meanwhile, it has built Istari, a cybersecurity platform supported by Ensign Infosecurity and other companies.

Temasek is adding internal resources elsewhere too, which appears to underline the asset owner's desire to do more deal-making, said Lopez. "[Temasek's] overall staff has grown 40% in the past five years both in Singapore and overseas, where there are over 200 Temasek employees now," he said. "This surely denotes focus on increasing in-house capabilities and weight in emerging markets and private markets."

"My personal view is that Temasek is doing a much better job than GIC who currently has huge internal capabilities but that did not translate to better returns," added the head of institutional client coverage at a large international fund manager.

SUSTAINABILITY DRIVE

Another area Temasek underlined in its results report was a drive to reduce its carbon footprint. The investment company reported that it had “closed the year with carbon neutrality”, and vowed to halve the net carbon emissions of its portfolio by 2030 and net zero emissions by 2050.

In addition, the asset owner said that it had strengthened its environmental, social and governance framework, which included more work on climate analysis and supporting its portfolio companies in such efforts.

“We are spurred by the opportunities to invest in or work with companies that can help address global sustainability challenges,” said Wu Yibing, Temasek's joint head of enterprise development group and head of China. 

It has also increasingly placed an emphasis on more sustainable investing, and Lim Boon Heng, chairman of Temasek, noted that the company would keep investing and acting as a steward “with the next one, two or three decades in mind”.

Article updated to clarify Temasek as state investment company and Wu Yibing's job title.