Temasek’s results were announced on 9 July and they were not a pretty picture. While the Board claimed a 1.5% return for the year to 31 March 2019 this was only after translation into depreciating Singapore dollars. In US$ terms the portfolio lost money, falling almost 2% in value. During that period the S&P 500 rose by over 11% while the MSCI World Index rose nearly 2% over the same period.

The opacity of Temasek’s portfolio increased as management increased the proportion invested in unlisted assets from 39% to 42% and announced the intention to increase it further. As we have seen this year when companies like Uber and Lyft came to market, the risk must be that Temasek’s unlisted assets portfolio is substantially overvalued and this will be felt in sub-par performance over several years. It seems that Temasek is trying to imitate Softbank’s Vision Fund which is already tainted by accusations that Masayoshi Son, the founder, is using it to dump underperforming investments on his Saudi Arabian and UAE investors.

Too much of the portfolio is invested in China, Europe and Singapore (which Temasek strangely defines to include Russia thus designating it a mature market) and not enough in the US which continues to outperform. Ho Ching’s unerring ability to pick dogs is demonstrated by its substantial holding of 4% of Bayer which declined 35% during the course of the year as the risk grew that it may have to file for bankruptcy as a result of its legal liabilities stemming from its exposure to the US company Monsanto’s (which Bayer acquired in 2018) herbicide Roundup. Plaintiffs in the US have already won numerous jury awards running into hundreds of millions of dollars after alleging that exposure to Roundup gave them cancer.

Temasek’s report touts its claimed return of 15% p.a. since inception. However as I said long ago this claimed return is bogus since it does not account for the fact that Temasek’s starting portfolio in 1974 was transferred from the Ministry of Finance at very low prices, even below book value. As its portfolio companies were listed, like Singapore Airlines, DBS, Singtel etc., there were huge revaluation gains.

This is what I wrote back in 2013 (Has Temasek Found a Cure for Balding?):

At the time of Temasek’s acquisition of these group companies from the government, even if there was no fair value determination for the companies transferred, Temasek should have recorded them at the book value they were showing in the acquiree company’s accounts. Temasek paid $354 million for the 35 companies by issuing shares to the government. It is hard to believe that this was book value even then. It is likely that Singapore Airlines alone even in 1974 had a book value of close to that figure.

If Temasek had chosen either to use fair values or book values for the assets acquired then the resultant gains should have been taken to income on the date of inception and added to the reserves.  The starting base for calculation of returns would then have been much higher and subsequent returns correspondingly lower, probably by a significant amount. Even if the acquiree companies’ book value was used it is highly likely that there would have been a higher starting value for Temasek’s initial assets and a significantly lower rate of return since then.

This does matter if you are a publicly listed company because investors will look at the track record of the managers. If you were a hedge fund manager and your returns were inflated because they include returns that belong to prior periods then that would be highly misleading and probably fraudulent. Regulators would definitely be concerned.  If the fund’s returns were padded by the injection of undervalued assets from other funds then this would also be misrepresentation of the true performance of the fund.  Before regulators tightened their rules on marking of assets and liabilities to fair value, which should be market values as far as possible, it is probably true to say that it was fairly common for investment bank proprietary trading desks to build up hidden reserves by undervaluing some of their assets.  These could then be released when necessary to cover losses or when bonus payments were calculated.

The Government points to the Net Investment Returns Contributions made by Temasek, GIC and MAS as justification for having two sovereign wealth funds as well as an investment portfolio run by the central bank. However as I have pointed out for years there is very little actual spending as most of the NIRCs are recycled into top-ups to endowments and trust funds such as the Pioneer Generation and Merdeka Generation Packages. Only a fraction of the money set aside is spent in any year and usually not much more than the interest on the capital amount.

Temasek and GIC have provided no net benefit to Singaporeans since whatever money has flowed out over and above that squirrelled away in ever more inventive special purpose funds has been dwarfed by the amounts the Government has injected into the funds using our CPF contributions and the budget surpluses created by decades-long austerity. As long as the movement of funds remains circular the returns are really irrelevant as we have no idea apart from the publicly listed stocks how the portfolio is really performing.

Temasek’s move into unlisted stocks should ring alarm bells because evidence suggests that many of these so-called “unicorns” are overvalued and will be sold off by investors should they come to market. Why do we have Temasek and GIC? The best solution would be complete transparency coupled with a listing and the divestment of both funds to Singaporeans, something that I have called for repeatedly (How to Create A True Property Owning Democracy through The Privatization of Temasek and GIC https://sonofadud.wordpress.com/2013/05/04/how-to-create-a-true-property-owning-democracy-through-the-privatization-of-temasek-and-gic/.) Transparency should start with the disclosure of the CEO’s and management’s total remuneration including salaries, bonuses, perks, co-investment of family money etc. I bet that Ho Ching has not been paid less than a billion dollars during her time as CEO of Temasek and maybe considerably more.

The Government’s refusal to tell us what the PM’s wife is paid leads me to suspect that the real reason for Temasek’s existence is to provide a cover to allow LHL and his wife a quasi-legitimate route for secretly extracting massive payments to themselves without Singaporeans knowing or needing Parliamentary approval. Lawrence Wong made the laughable answer to WP’s Parliamentary question that Temasek and GIC were private companies and thus remuneration did not have to be disclosed. The fact is that if Temasek really was in the private sector Ho Ching would have been fired long ago. It should worry Singaporeans that she continues in office year after year with no hint that she plans to retire. The sure sign of a rogue trader is that she refuses to go on holiday. Does this mean that there are some really serious skeletons in the cupboard, as I wrote back in 2012? Temasek’s lack of transparency was obviously the model for Najib and his gang of kleptocrats when they decided to set up 1MDB. It must have made Najib green with envy seeing what the Lees are able to get away with while being commended for “good governance” and “inclusivity” by the West.

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam