Temasek's portfolio value recovers to 2008 levels

Asia, and other growth markets including Latin America, remains the sovereign fund's key investment focus for the next 10 years.

The value of Singaporean sovereign wealth fund Temasek Holdings has climbed back up to S$186 billion ($134 billion; €106 billion) from its 2009 fiscal year low of S$130 billion, according to its 2010 annual report published Thursday.

This brings it back in line with the value of S$185 billion recorded before the crisis at the end of March 2008. Compound annual returns by market value stand at 17 percent since Temasek’s inception in 1974, and 42 percent in the last year.

“This set of robust results is in part the result of the global recovery in the financial markets, and partly due to the investments we made during the crisis,” Temasek executive director Simon Israel said in a press conference.

However, Temasek’s annual group net profit in the last fiscal year dropped to S$4.6 billion from S$6.2 billion in fiscal year 2009 (and S$18.2 billion in fiscal year 2008). This was primarily due to lower portfolio company contributions, the annual report noted.

Looking forward, Temasek will continue its investment bias towards Asia over the next ten years, and will also increase its exposure to other growth markets, such as Latin America, Israel stated.

“As a long-term investor, we remain up on Asian markets, including Singapore, and on other growth markets such as Brazil,” he commented.

He pointed out that a significantly higher level of returns had been recorded by investments made after 31 March 2002, when Temasek shifted its investment strategy to incorporate a greater focus on Asia and reduce exposure to the mature economies of the OECD.

Investments made post-2002 have recorded eight-year annualized returns of 23 percent, compared to a comparative figure of 12 percent for investments made prior to that date, the report showed.

The same timeframe has also seen the SWF’s holdings in unlisted increase assets slightly, from 20 percent at 31 March 2004 to 23 percent at 31 March 2010. No comment was given on the institution’s plans for third party and direct private equity investments going forward.

In terms of geography, as of 31 March 2010, Temasek’s exposure to Asia (ex Singapore and Japan) stood at 46 percent, while its allocation to OECD economies was 20 percent. Allocations to Singapore and “other” regions, including Latin America, stood at 32 percent and 2 percent respectively.

 Going forward, Temasek’s chief strategist, Jimmy Phoon, said the SWF intended to keep a roughly 40: 30: 20: 10 split in percentage allocation to Asia (ex Japan and Singapore): Singapore: OECD economies and “other” economies.

Stressing that Temasek was primarily an Asia-focused equities investor, Israel also spoke about the rationale behind the launch in August 2009 of Seatown, a Temasek-backed investment manager intended as a more “diversified” investor in terms of geography and asset classes.

Declining to be specific on Seatown’s investment remit, Israel said Temsaek had committed over S$4 billion to the firm, which has an independent investment board and has already begun investing. However, Israel stressed that it was “early days” for the business, which is still recruiting its team across the different asset classes and fine-tuning its investment strategy.

Seatown is intended to seek out co-investors opportunities. At present, it has reciprocal co-investment rights in place only with Temasek, but within three to five years the expectation is that Seatown will seek “sophisticated investors” as co-investment partners. In eight to 10 years' time, following a test period of at least one market cycle, Israel explained Seatown would be able to offer co-investment opportunities to the general public, although he noted this plan was still at an embryonic stage.

Seatown and Temasek have already notched up at least one co-investment. The two invested alongside China-based private equity firm Hopu Investment Management in Hong Kong-listed China Yurun Food Group in April this year, according to a Bloomberg report. Hopu, Temasek and Seatown purchased a 4.3 percent stake in the Chinese meatpacker for $165 million, $50 million and $20 million respectively, the report noted.