Temasek Outperforms?
June 2nd, 2009 | 
Author: By Edmund Khor, Guest Columnist
On 15 May, the news media learnt from a quarterly report that Temasek Holdings filed with the US SEC (Securities and Exchange Commission) that the sovereign wealth fund had sold its entire 3.8% stake in Bank of America as of 31 Mar 2009. There was strong public concern as Temasek had realized a loss of potentially US$4.6 bn from its US$5.9 bn investment in Merrill Lynch.
Bank of America acquired Merrill Lynch in an all-stock deal worth US$50 bn announced on 15 Sep 2008 – the day that Lehman Brothers filed for bankruptcy. Merrill Lynch was at the time within days of collapse, and the acquisition effectively saved Merrill from bankruptcy.
In Parliament on 28 May, Minister of Finance Tharman Shanmugaratnam in defence of Temasek asked that the sovereign wealth fund be evaluated based on its overall performance and revealed that it made a gain of S$56 bn over the period end-Mar 2003 to end-Nov 2008. This was equivalent to total shareholder returns of slightly over 15% per year on average in US$ terms.
According to the minister, the loss of S$58 bn between Mar and Nov 08 came after a gain of S$114 bn over the preceding five years of the bull market cycle. The minister also claimed that Temasek outperformed many other large investors over the period.
However as different investors have different asset and geographical mandates, comparing solely based on percentage return would be misleading. In this article, we attempt to analyze Temasek’s investment performance against the risk profile of its investments.
Comparison against the performance of the local stock market
The minister reported that Temasek had generated total shareholder returns of slightly over 15% per year on average in US$ terms. Over the same period, the S$ appreciated by 17% (from 1.76 to 1.51) against the US$, at an annualized rate of 2.9% per year. Thus Temasek’s total shareholder returns in local currency terms should be around 12%.
The MSCI Singapore index (total return with gross dividend) in local dollar terms showed a simple annualised return of 11.3% per year over the same period. Thus it seems that there doesn’t seem to be much value-add from Temasek’s overseas investments in enhancing its overall return.
Comparison against the global equity market indices
In this section, we compare Temasek investment returns against the global equity market indices. As the investment return was provided in US$ terms, we would compare it like-for-like against the US$ benchmarks.
The minister has brandished the 15% average return against the 6% annualised return from the MSCI World index. He also added that a weighted index of the global, Asian and Singapore equity market indices would have delivered more than 6% but significantly less than Temasek’s gains of 15% per year.
However, a check on the MSCI index portal revealed that the MSCI World index is an index that is designed to measure the equity market performance of developed markets. It consists of 23 developed market country indices, including Australia, Canada, France, Germany, Japan, Singapore, Switzerland, UK, US etc.[1]
A significant proportion of Temasek’s investments is in the emerging markets, e.g. China, Taiwan, Korea, India and Pakistan. The geographical distribution of Temasek’s portfolio as at end-Mar 2008, which is not too different from the year before, is as follows:[2]
|
Regions |
Percentage |
|
Singapore |
33% |
|
North Asia (China, Korea, Taiwan) |
22% |
|
ASEAN |
12% |
|
South Asia (India, Pakistan) |
7% |
|
OECD Economies |
23% |
|
Others |
3% |
Temasek have earlier maintained that its portfolio target is to have Singapore, Asia ex-Japan and OECD economies each account for a third of its exposures. On 12 May, Temasek’s outgoing CEO Ms Ho Ching when speaking to the elitist Junior Pyramid club revealed that Temasek had decided to revise its portfolio allocation to 40% to Asia, 30% to Singapore, 20% to OECD nations and 10% to Latin America, Russia and Africa.
For a more representative benchmark to measure Temasek’s portfolio performance, we attempt to create a customised benchmark that best reflects the geographical distribution of Temasek’s investments.
We have chosen the following indices with their weights as listed.
1. MSCI Singapore Index 35% (for Singapore exposures)
2. MSCI AC (All Country) Asia ex Japan Index 40% (for North Asia, ASEAN and South Asian exposures)
3. MSCI World 25% (for OECD exposures)
The annualized returns of these indices in US$ terms over the period are as follows:
1) MSCI Singapore Index 16.2%
2) MSCI AC (All Country) Asia ex Japan Index 15.7%
3) MSCI World 6.4% – this was the number the minister used
The annualised return of the customized benchmark would be 13.5% per year, which is significantly higher than the 6% from the MSCI World index used. If we were to weight the indices equally, the annualised return of the customized benchmark would be 12.7%. Going by the numbers, Temasek has outperformed the more representative benchmark by only 1.5% per year.
Not your ordinary fund manager
However, Temasek is not your typical fund manager. The state investment vehicle has also been tasked with the privatization of government-related companies, like Singtel and SMRT. Government-linked companies (GLCs) indentified for privatization or divestment were typically transferred to Temasek.
In 1997, the government transferred PSA (formerly the Port of Singapore Authority) to Temasek. In 2001, Temasek received in its arms Singapore Power together with two electricity generators – PowerSeraya and Power Senoko.
The other unlisted entities in the portfolio include MediaCorp, ST Telemedia and Mapletree etc. As of 31 Mar 2009, 21% of the assets in the portfolio were unlisted. Temasek uses the book value or shareholder equity of these unlisted entities for the valuation. Market gains are realized only when investments are sold.
Over a period of 10 months in 2008, Temasek sold all three Singapore power generation companies under its charge. These gencos together generate 90% of Singapore’s electricity needs.
|
Date |
Entity Sold |
Buyer |
Proceeds |
|
Mar 2008 |
Tuas Power |
China Huaneng Group |
S$4.235 bn |
|
Sep 2008 |
Senoko Power |
Japanese consortium |
S$3.65 bn |
|
Dec 2008 |
PowerSeraya |
Malaysia’s YTL Power |
S$3.8 bn |
What is not known are the transaction prices of these asset transfers between the government and Temasek. If the prices were significantly on the low side of things, the gains from the sale of these transferred entities would artificially inflate Temasek’s overall investment return.
Global Investment Outlook
To combat against the domino effect of the subprime mortgage crisis particularly after the collapse of Lehman’s Brothers, various governments have committed or spent sums of money unheard of in loans, asset purchases, guarantees, and direct spending. The government policy response has been to load up all the risks & debt onto public sector. Countries like UK, Ireland and Spain, are now facing increasingly limited fiscal flexibility resulting in actual or potential rating downgrades.
The quantitative easing actions and bank bailout packages by countries like US and UK are expected to create huge tail risks in the form of significant foreign forex and rates volatility. The lead risk drivers in the financial markets in the coming months are likely to be the forex and rates markets, rather than the credit and equity markets.
Better Risk Management and Disclosure Needed
Our analysis against the global equity market indices raised a question whether the Ministry of Finance has used a representative benchmark for the emerging market risks that Temasek’s portfolio is exposed to. Using the MSCI World index meant for developed markets is clearly inappropriate, particularly as Temasek is allocating more money into Asia ex-Japan and new emerging markets, like Latin America, Russia and Africa.
Apart from not using a more representative equity market benchmark, it also seems strange that the Ministry of Finance is presenting (and hopefully not assessing) Temasek’s portfolio return in US$ terms while the shareholder equity base is in S$. This is crucial given that 70% of Temasek’s investment are in overseas market, the expected forex volatility in the coming months could impact Temasek’s investment performance significantly.
Another issue is the management of investment risks. On page 58 of Temasek Review 2008[3] revealed that the fund’s Value-at-Risk increased by 67% versus a year ago to S$40 bn as at Mar 2008, thought its portfolio value increased by only 13% to S$185 bn due to increased market volatility. Temasek lost half of its 5-year gains in 8 months. On hindsight, the Government would have done much better if it had asked Temasek to cap its investment risk in face of the uncertain and increasingly volatile macroeconomic environment, and shift the money to the Monetary Authority of Singapore (MAS) which invests mainly in G3-denominated government bonds.
Finally, more disclosure is required. Our government reserves ultimately come from Singaporeans’ CPF savings, and past budget surpluses from income taxes, GST and other government charges Singaporeans paid. People have the right for more transparency from our sovereign wealth funds. Without revealing on tactical investment strategies, Temasek and the Government of Singapore Investment Corporation (GIC) should publish portfolio level return figures to show how their various asset classes performed against their benchmarks. A good example of such disclosure is provided by The Government Pension Fund of Norway.[4]
==
|
Exchange Rate and equity indices used |
Bloomberg Ticker |
Value as at 31 Mar 2003 |
Value as at 28 Nov 2008 |
Simple annualised return |
|
USD/SGD exchange rate |
SGD Curncy |
1.7641 |
1.5131 |
2.9% |
|
MSCI Singapore Index (local SGD) |
GDDLSG Index |
1450.216 |
2377.218 |
11.3% |
|
MSCI Singapore Index (USD) |
GDDUSG Index |
2526.22 |
4841.69 |
16.2% |
|
MSCI AC (All Country) Asia ex Japan Index (USD) |
GDUECAXJ Index |
236.372 |
446.276 |
15.7% |
|
MSCI World Index (USD) |
GDDUWI Index |
2074.666 |
2827.608 |
6.4% |
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40 Responses to “Temasek Outperforms?”
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“our government reserves ultimately come from Singaporeans’ CPF savings”
The government reserves does not include CPF savings.
CPF savings belong to every individual CPF contributor. For uninvested CPF contributions, the money will be used to buy government bonds.
The gov will draw from the reserve to top up the 4% interest rate for special acct if the gov bond yield is below 4%.
In short, it is illegal for the gov to touch the CPF savings for any overseas investments.
When assets are transferred from Government to Temasek, what were the prices and how were
these valued? If it is at book price, how much difference was it from the then prevailing market price? The Government has urged the private sector to be transparent but the same standard, if not a higher one, should be set for itself. Until we see more transparency, we do not really know the truth.
I really hope they outperform. I will believe them 100% if they to return back CPF withdrawal age back to 55.
Pls go ahead and prove me wrong.
Good analysis!
It just show that govt will pick and choose benchmarks to make them look good.
Tharman must redo his presentation since he has used incorrect benchmark
Dear Edmund,
EXCELLENT write-up……the very best I’ve come across.
Thanks to Wayang Party for the platform.
This write-up should be sent to ALL Members of Parliament, including PM etc & President and DISSEMINATED widely.
To Anonymous@10.03
The CPF Board uses the proceeds collected from CPF members to buy special issues of SGS issued by the govt to pay interest to CPF members.
The govt then places the CPF proceeds with MAS and, through MAS, with GIC and Temasek. The govt also injects our budget surpluses into the sovereign wealth funds.
MAS invests mainly in liquid G3 denominated govt bonds and highly-rated non-govt debt as our foreign reserves.
Temasek invests 100% in listed as well as unlisted equities.
GIC puts the money in the traded securities as well as less liquid and longer-term investments, e.g. real estate, private equity and infrastructure. This allows GIC to earn a higher return by undertaking the higher volatility and liquidity risks.
Thus our government reserves do utimately come from people’s CPF savings and our past budget surpluses.
excellent analysis. when those numbers were first announced, we definitely all had suspicions on how they were derived.
and to divert the attention by saying how much we “made” does not adequately explain how much we lost and why we lost so much on the BOA deal. stop diverting, Temasek!
Brilliant writeup! The alternative media needs more contributors like you.
Everyone has been suspicious of Tharman’s claims that Temasek has outperformed the market despite such huge losses, but Tharman’s figures are strong. Now we finally see why those figures were not as appropriate as they can be.
It is a pity our opposition MPs did not have your analysis so that they can refute Tharman on the spot.
Any clowns want to be fund managers? Let alone Temasek’s.
Speak like s sure-maken investor.
Buy 4-D lah then. Can’r amakn no need to work Just sit at the SE and collect money.
No brains.
Please don’t be fool by the latest proposal from PM Lee on the political reform.
He say they allow more voices to be heard in parliament.
We are not interested in voices, we want changes, and that can’t be done unless we vote 2/3 opposition in.
So make that happen in the next election.
to Anonymous :
The govt borrowed CPF monies and pay us a low return rate for speculation.
That’s the essence of what was written.
Of course, the return we get is not matched with the duration that the monies are held in custody by the govt.
They are paying us a 10 year bond + 1% rate when the monies are held for longer than 20.
Seriously, there’s nothing to be proud of. General Motors had just declared itself bankrupt. Have we see the bottomless pit of this recession yet? No! Temasek and GIC will probably still incurred loses till god knows when.
Earning $114 billion within 5 years and losing half that amount within 6 months. It takes no financial whiz to know that Temasek screwed up big time.
But a big thank you to you, Edmund for showing us just how big Temasek had screwed up.
A big thank you to Edmund for the analysis!
I think there are other important issues that Tharman needed to address too:
How did the investment managers at Temasek and GIC come to the decision to buy the shares of the various banks? I read from the national newspapers that some of the decisions to invest were made in less than a day? Given the amount of money involved, was that time sufficient enough to carry out a proper due diligence check? Or was the decision made cos of personal relationships?
I also read that one of the Real Estate Managers at GIC decided to invest in a real estate investment in the US because he was acquainted with the boss of the firm for years!!! Wow, that sure is easy to make an investment decision! What if the guy was a Madhoff? Is this how our fund managers work in these places?
Where is the accountability in the system? Over to you Mr Tharman….
Seriously I have to reckon that” The minister also claimed that Temasek outperformed many other large investors over the period.” is very true. Temasek outperform others in term of loss and hooha not profit.
your title needs to be corrected..
they hv been “outperformed” by puny Papua New Guinea.
http://www.radioaustralia.net.au/programguide/stories/200802/s2168040.htm
more recently, they have been outperformed by a shiekh
http://www.ft.com/cms/s/0/195c6358-4…44feabdc0.html
3 words
shame shame shame…
Kin Hong- according to past parliamentary record, investment in Citibank was made by their advisors. Now who can they be?
The ex-CEO of DBS Richard Stanley was from Citibank. Possible.
Very powerful man in Singapore was named as a consultant to Citibank. Not sure if he still remains to be so.
Not sure also if they were directly involved in advising to buy. But for sure, a billion $$ sales does not go to the manager alone based on standard industry protocol. It has to get pass the Board of directors and investors in a EOGM.
read here
http://johnharding.com/tag/citibank/
XIIIBlackCat on Tues 2 June wrote:
“Earning $114 billion within 5 years and losing half that amount within 6 months. It takes no financial whiz to know that Temasek screwed up big time.
But a big thank you to you, Edmund for showing us just how big Temasek had screwed up.”
Kin Hong on Tues 2 June wrote:
“Where is the accountability in the system? Over to you Mr Tharman….”
PM, MM, Nathan the president, SM too (?), FnM, Lim Hwee Hua the (?) oso defended PLUS Temasek’s MD for Corp Comm. in her letter to the press, ALL gave different ‘SWINGS’ to the whole saga of theirs. BUT but wait a minute, Temasek EX-CEO & ED said what? Hers was the most snake spin-swing of all after her big screw up talked of lving life w/o taking risks!
This madam screw up more than US58B since SembCorp, ST and then Temasek – YET GAVE her philosophy about living life in the Corp. Investment AREN??? A LOT OF BULL BUT W/O ANY HORN!!! The audacity and lack of the sense of honour and transparency is ONLY ONE THING. BUT their LACK OF HONESTY even coming from
those in AND esp. those NOT IN PoliticARENA IS THE WORSE BETRAYAL to OUR PEOPLE. They ALL ACTED IN CONCERT to DEBUNK OUR “COMMON SENSE” eh? NUTS of Creative Technology CEO Mr. Sim Wong Hoo’s defination surely!!!
So Tharman, WE KNOW where he is coming right? IT IS THE ISSUE OF A CERTAIN MADAM LOSING AT LEAST us58B IN RECORD TIME ISN’T IT? HOW ONG WAS MADAM IN Temasek? And your US56B gain was for 6 yrs right? And SM spooked us about what a great famiLEE which included her as spouse taken on the famiLEE name only in marital union. So, where is THAT Conundrum really? Even a sensible teenager can figure THIS ONE OUT! As Jack Neo titled picture of yore said “WE NOT STUPID” HaW! Period! A wolf in sheep’s clothing IS STILL a sheep!
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Abu Dhabi fund makes 1.5 billion pound PROFIT = 70% when it just sold its convertible notes investment of 2 billion pound in Barclays bank in October 2008…….read today’s (Wed) TODAY newspaper.
Abu Dhabi still has some more warrants which is in the money worth another billion pound. also got Barclays bonds paying 14% interest which again is worth nearly double.
Aii in Abu Dhabi nearly double its money.
http://business.asiaone.com/Business/News/Story/A1Story20090603-145893.html
Singapore’s Temasek sold Barclays stake : sources
Wed, Jun 03, 2009
Reuters
LONDON, ENGLAND – Singapore state investor Temasek sold its stake in British bank Barclays Plc several months ago at a big loss, people familiar with the matter said on Wednesday.
After spending over 1 billion pounds on the shares in the last two years, unlisted Temasek may have lost over $1.89 billion (800 million pounds) on the investment, according to calculations by Reuters.
Temasek sold its near 2 percent stake in Britain’s second biggest bank in December and January, one of the sources said. The sources declined to be named due to the confidential nature of the investment.
Temasek and Barclays declined to comment, and details of the price it sold at were not known.
another sale, another loss. this time,it is barclays, temasek is believed to lose about 800 million pounds.
Again, it is a “long term” investment sold at the wrong time.
Know or ‘pretend’ not to know and so try try to meet the demand & greed for more returns, all despite their rebuttals in kind – ABOUT this …???????????????????????????????????????
“Owners of Capital will stimulate more and more of expensive goods, houses and technology, pushing them to take more and more credits, until their debts become unbearable. The unpaid debt will lead to the bankruptcy of banks, which will have to be nationalized, and state will have to take the road which will eventually lead to communism.” – Karl Marx 1867
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
And now for all their BIG TALK … Are THEY over-smart OR under-smart guys???///???///???/// – somewhat slanting and I still not know why?????????????????????????????????????????????
ST just publish the following breaking news at its website:
TEMASEK Holdings has sold its stake of almost 2 per cent in British banking giant Barclays in December and January, according to an unsourced Reuters report.
Both parties declined comment when contacted by The Straits Times on Wednesday. A Temasek spokesman said: ‘We don’t comment on unsourced reports.’
However, sources told The Straits Times that Temasek sustained a loss of between 500 million pounds and 600 million pounds on the sale, which was said to be have been completed in December and January.
Its loss is in sharp contrast to the Abu Dhabi government, which sold more than 11 per cent of the bank’s shares on Tuesday, making a US$2.5 billion profit from its investment in just seven months.
Temasek paid 975 million pounds buying Barclays shares at 720 pence apiece in July 2007.
Temasek sold its 3 per cent stake in the Bank of America in the first three months of the year, leading to estimated losses of between US$2.3 billion and US$4.6 billion and prompting criticism of the move.
===============================================================
I believe ST Editor will heavily edit this when it is printed tomorrow….so as not to make Temasek look bad.
Temasek was said to have lost about £850m from a total investment of around £1200m (initially invested £1 billion in July 2007 & £200m in a rights issue in 2008) or a lost of about 80%, according to UK media.
Thanks for your doing your homework first and Critical Thinking too before you shared. GREAT!
It’s like Temasek Holdings is taking our money to go to casino – gamble more and more after a win due to greed until Oct 08 when the winning streak had just ended.
Vote wisely.
more losses… ytd I posted shiekh made GBP1.5 bln selling Barclay. after that it seems Temasick also sold their 2% ownership and posted GBP0.5 bln losses.
http://www.independent.co.uk/news/business/comment/jeremy-warner/jeremy-warner-temasek-loses-its-touch-on-barclays-1696441.html
http://www.straitstimes.com/Breaking%2BNews/Singapore/Story/STIStory_385671.html
clap clap…
to Kancheong_spider
Hey, are you the same fella who likes to eat lup cheong?
[I have a friend who is always kancheong and likes to eat lup cheong!!!! and also always afraid that the ISA will knock on his door at night...]
If u are the same guy, then I say: BRAVO!!!
SMLJ?
If I remember correctly, someone from the top elite in Temasek once said that if the investments they put into SIA do not generate a certain percent of ROIs, they would rather invest the money somewhere else and get better returns. Now look at what has happened to their investments somewhere else?. I would think that most investments with TLCs did generate reasonable ROIs for Temasek as compared to the hugh losses that were invested somewhere else. In hindsight,perhaps Temasek could have invested more money in home grown companies rather than foreign owned companies or somewhere else.
This will be a good Jack Neo film, to be titled:
“Big Screw Ups and Bigger Cover Ups!”
http://www.straitstimes.com/Breaking%2BNews/Singapore/Story/STIStory_392222.html
Temasek still outperforms
By Alvin Foo
SINGAPORE investment agency Temasek Holdings may have taken a hit recently on some of its high-profile banking investments, but over the longer term it has outperformed key global benchmarks.
Figures obtained by The Straits Times show that over a 10 year period to March this year, Temasek outgunned several closely-watched equity indexes.
It also beat other notable long-term investors such as Berkshire Hathaway, a top US investment company headed by billionaire Warren Buffet.
Temasek’s performance has come under scrutiny in recent months after it suffered significant losses earlier this year on investments in Western banks Barclays and Bank of America (BoA).
The state investment house delivered an annualised total shareholder return by market value of 5.4 per cent from March 1999 to March 2009, according to figures obtained by The Straits Times.
This compares with a 4.5 per cent return in the same period for the MSCI Asia Pacific excluding Japan index, 3.1 per cent for the MSCI Singapore index, and -3 per cent for the MSCI World index.
MSCI indexes are key indicators commonly used by institutional investors to see how well they are doing relative to the market.
Temasek’s main investments are in stocks, with the bulk of its assets in Singapore and Asia, so these indexes are regarded as a useful gauge of its performance.
Temasek’s returns were also better than that of long-term investors Swedish investment firm Investor AB, which delivered 3.7 per cent, and Berkshire Hathaway, which yielded 0.7 per cent.
The article showed it outperformed Berkshire Hathaway by quoting their 0.7% return. That is rubbish. The 10 year annual return I calculated for Bershire is 6.4% not 0.7%!
Temasek or the Straits Times can’t even do simple arithmetic!
I sense a lot of partisan views in this column. Unfortunately (or fortunately or us) the numbers do speak for themselves and, I believe, whether or not Temasek “outperformed”, is a matter for on-going debate (simply no right or wrong answer). Because Temesak is a one-of SWF, there is really no such thing as comparing apples with apples.
Using Edmund’s adjusted numbers…
1. “Temasek’s total shareholder returns in local currency terms should be around 12%… The MSCI Singapore index in local dollar terms showed a simple annualised return of 11.3% per year over the same period….”
This is considered ‘out perform’ isn’t it?
2. “15%” versus “annualised return of the customized benchmark… being 13.5% per year”
This is still considered ‘out perform’ isn’t it?
This leads to another question… how MORE of ‘out perform’ is enough for you? Or is it ever enough?
The only worthy benchmark I can think of is… ‘yourself.’ Question: What would YOU have done better if you were Temasek – to make the best use of the monies of Singaporeans? I don’t see anyone putting their hand up to answer this qn – yet (maybe can be discussed in a seperate topic?).
So my conclusion – I don’t think there can be any right quantitative method to justify a topic which is qualitative (subjective) in and of itself. That said I do think this is a good article. I do advocate increased transparency. T uses monies that Singaporeans work so hard for anyway – so we all should have the right to know, not only how much T has made (or did not make), but also how decisions are made regarding certain investment decisions (e.g. why 40/30/20/10? – is this the result of some hard number crunching and use of sophisticated risk allocation portfolio theory? Or did Ho Ching use this because the numbers look pretty? Why not use Fibonacci sequence instead?
).
Cheers
KO
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