Temasek declared results for the fiscal year to March 2009 last week, showing a net portfolio value of S$172 billion ($121 billion), down 7.5% from S$185 billion in fiscal 2008. 

The Singapore-based investment firm earned a consolidated group net profit of S$6 billion during the year, one-third of the S$18 billion it posted for the previous financial year. Temasek attributed the drop in net profit to lower contributions from portfolio companies, as well as losses on investments.

"We have been building up our liquidity methodically over the last two years with a net cash position as we were mindful of a possible downturn," Ho Ching, Temasek's chief executive officer, said in a written statement. "However, we did not anticipate the speed and ferocity of the worst global financial crisis since the Great Depression."

During the year, Temasek cashed in S$16 billion worth of investments, including the firm's exit earlier this year from Bank of America. Temasek initially invested $3.4 billion in Merrill Lynch in December 2007, then added to its holdings in the US investment bank in July 2008. It became a shareholder in BoA after its merger with Merrill in January this year. Temasek also cashed in its investments in two Singapore power generating companies, Senoko Power and PowerSeraya.

Temasek invested a further S$9 billion during the year, with Hong Kong-based trading firm Li & Fung and Singapore-based commodities trader Olam International among the new investee companies. The S$9 billion also includes S$3 billion of rights entitlements in existing portfolio companies, including Standard Chartered, DBS Bank and CapitaLand, that completed rights issues during the year.

The book value of Temasek's investment portfolio on March 31 was S$118 billion. Its investments are heavily weighted towards Asia, with almost three-quarters invested in the region -- 31% in Singapore, 27% in North Asia and the balance 16% in the rest of Asia. Of the remainder, 22% is invested in OECD economies and 4% in new markets such as Latin America and Russia.

"We believe that as Asia progresses, it will continue to derisk," said Ho of the geographical split. "We are comfortable to overweight Asia."

Temasek's investments are most heavily weighted towards the financial services sector, which accounts for one-third of its portfolio. The second highest allocation, 26%, is to the telecommunications and media sector.

Temasek reiterated the principles governing executive compensation which Ho had outlined at a luncheon speech in Singapore in July. The bulk of bonuses paid to Temasek's senior management are deferred between three and 12 years. As the Temasek portfolio did not reach its required hurdle rate for the most recent financial year, deferred bonuses will be subject to clawback, as they were in the previous year. The hurdle rate includes a cost of capital charge and other adjustments.

"We aim to foster a long-term owner's frame of mind in our team through a well-balanced compensation structure," Temasek chairman S Dhanabalan said in the statement. "While the downturn has been uncomfortable, it gave us the opportunity to test and refine the principles of allocating negative bonuses under our incentive framework, and also to finalise the remaining long-term components of our incentive framework to further align our staff to sustainable long-term performance."