Singapore Sovereign Fund Shifts Investment Strategy

Temasek Holdings, the smaller but more visible of Singapore’s two sovereign funds, is moving into a new phase with its investment strategy, writes Reuters. The shift in strategy could transform the institution into a group similar to Blackstone, another $160 billion institution, which has grown from a focused private equity firm to a global asset manager, writes Reuters.

Reuters – Temasek Holdings, the smaller but more visible of Singapore’s two sovereign funds, is moving into a new phase with its investment strategy, and could look more like Blackstone Group (BX.N), another $160 billion institution, which has grown from a focused private equity firm to a global asset manager.

The shift follows setbacks since the 2008 financial crisis; the loss of $5 billion invested in Western banks; the abrupt departure of the fund’s first non-local CEO before he’d even taken up the post; and the recent exit of dealmakers hired by CEO Ho Ching, the prime minister’s wife, who has led Temasek for a decade.

But as it charts a new path, Temasek, the world’s ninth-biggest sovereign investor, faces significant hurdles. These include a smooth leadership transition, reducing the fund’s cost of capital, and investing in places like Latin America and Africa where it has little experience, say analysts and people familiar with the way the fund works.

While Temasek stresses it remains focused on long-term performance and Asia, executives say they accept that a new era is beginning for the institution, with a wave of experienced finance executives arriving, more investments in developed markets to come, and tighter controls on risk.

“I would call it an evolutionary phase,” Dilhan Pillay Sandrasegara, Temasek’s head of portfolio management, told Reuters in an exclusive interview when asked if a recent management shake-up signaled a transition point.

The 48-year-old former M&A lawyer, who many see as being groomed for the top job, points out that as a long term, equity investment fund with a single shareholder, Temasek has nearly 80 percent of its portfolio in listed shares, putting it at the mercy of the market’s twists and turns.

That shareholder, Singapore’s finance ministry, felt the pain in the wake of the global financial crisis. Temasek lost S$55 billion ($43.4 billion) in portfolio value in the year to March 2009, prompting local lawmakers and analysts to take aim at how the fund manages risk, how it decides where to invest and how it then manages those investments.

Temasek wasn’t alone in being battered by the crisis, with most investors worldwide struggling, including China’s then new sovereign wealth fund, China Investment Corp, which currently has a portfolio worth $440 billion.

Even after trimming its stakes in big Western banks and a rebound in markets, Temasek’s overall portfolio rose less than 4 percent year-on-year in the year to last March.

At Temasek, the amount of so-called “wealth added” through the fund has fallen in three of the last four financial years. Wealth added is a key metric the fund itself uses to measure gains after the cost of capital – money needed for equity and debt servicing – has been factored in.

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Beyond the internal financial metrics, analysts and investment bankers say one of the biggest issues Temasek faces is the uncertainty around its leadership. Two years ago, citing “strategic differences”, former BHP Billiton CEO Charles “Chip” Goodyear quit Temasek just months after being tapped to replace Ho as the fund’s first non-Singaporean chief. Goodyear declined to comment for this article.

People who have worked with Ho say she is a hands-on leader, involved in all the big decisions and known to send BlackBerry messages to managers in the middle of the night. She is credited with taking Temasek from a small, government bureaucracy to a modern-day investment fund, raising its global profile.

At the time of Goodyear’s abrupt exit, Finance Minister Tharman Shanmugaratnam said the next CEO should ideally be a Singaporean. “Everything else being equal, when you look at two candidates who are equally suitable for the job, I think we should prefer to have the Singaporean,” he told parliament.

A political analyst and author of books on Singapore’s politics and economy said the next chief should be seen by the public to be politically independent.

“The longer Ms Ho remains CEO, the longer Temasek’s leadership is perceived by some analysts as too close to Singapore’s political establishment,” said Garry Rodan, professor at the Asia Research Centre of Murdoch University in Perth, Australia.

“It matters less what a new CEO’s nationality is and more that this person enjoys a public perception and reputation for both professional competence and political independence.”

Ho has never given an interview to the media. Temasek made Sandrasegara available for an interview for this article.

On the issue of succession, Sandrasegara said: “What I can tell you is that Ho Ching remains very engaged with us. We have said there is an annual succession plan exercise since 2005 which the board looks. It’s something I can’t comment on because it is really a board issue.”

Speculation about change at the very top coincides with a flurry of arrivals and departures around the executive lounge.

Greg Curl, once seen as CEO material at Bank of America (BAC.N) joined Temasek in 2010, and former UBS (UBSN.VX) chief financial officer John Cryan came on board earlier this year. Several Temasek veterans from senior management roles have exited, including Charles Ong, who joined his brother’s private equity fund. Ong declined to comment for this article.

Sandrasegara said Temasek is also promoting professionals from within, though he acknowledges more focus has been on new hires.


Sandrasegara is a fourth generation lawyer – both his parents practiced – whose family roots are in Sri Lanka, though he grew up in Kuala Lumpur and has spent most of his life in Singapore.

He was a successful mergers and acquisitions attorney, nearing 20 years at Singapore law firm WongPartnership, which he co-founded in 1992, when he made the jump to investment management.

“Ho Ching is a very persuasive person,” he said during the interview in a spacious conference room at Temasek’s head office, amid colorful, retro carpets and walls which Ho, known internally as “HC”, helped design. “She managed to persuade me, where others could not, to make a big change.”

Last year, investment bankers and financial professionals who worked with Temasek sensed Sandrasegara was being prepared to take over when Ho stands down.

Asked about Temasek’s broad investing strategy, Sandrasegara bounded from his chair to a whiteboard brandishing a marker pen and, like a football coach designing a play, drew four concentric circles to show the variety of assets Temasek oversees and funds where it’s invested.

Like a private equity business, Temasek invests directly in companies and injects capital into separate vehicles run by former managers or by bankers, such as the Broad Peak hedge fund run by ex-Goldman Sachs (GS.N) executives. Temasek’s exposure to real estate, for example, is mainly through portfolio companies like CapitaLand (CATL.SI), though it has lately made direct investments, too, Sandrasegara said.

He cited the example of Blackstone which invests in a variety of assets, such as credit, which gives the U.S. firm an early signal to events that could affect equity positions. “I don’t think we’re really any different from institutions like that,” he said.

Sandrasegara said Temasek is seeking financial sector investment opportunities in Latin America and Africa, regions it has just ventured into, and would also look at developed markets such as the United States, particularly at the technology, media and life sciences sectors.

Under Temasek’s current structure, he said senior managers each oversee one of nine industry specific clusters and are encouraged to take a long-term view.

“Are we focused on the next 12, 24 to 36 months? No,” Sandrasegara said. “I’m not saying we’re getting everything 100 percent correct. But, by and large, we’re invested in the right companies because they would withstand the cycles in markets, the ups and downs.”


Temasek does not have a risk committee at board level, which some investment professionals say has left the fund open to decisions that took too much to chance. On its website, Temasek says its board determines the objectives and overall direction for its risk management framework, and its CEO and senior management team promote a culture of risk awareness and balanced risk-taking.

“Every commercial organization of any reasonable scale, and in particular financial institutions, simply must have a dedicated risk management committee of the board that is fully independent of management,” said Michael Dee, former Southeast Asia CEO of Morgan Stanley (MS.N) and a senior managing director at Temasek between 2008-10.

“To not do so is simply playing Russian Roulette and is inexcusable in today’s volatile era and in light of the recent financial crisis,” he said, without referring specifically to Temasek.

Sandrasegara said Temasek works differently to other asset managers, noting more than half its portfolio is made up of companies with their own oversight and risk committees.

“We are equity investors. What do we do? We look to determine the probabilities of achieving our returns and the probability of going the other way,” he said.

Seven years ago, Temasek’s Value-at-Risk (VaR) – the amount of cash a fund may lose in a given year in the event of a major downturn – was equal to just 6 percent of its portfolio, but swelled over the next three years to 22 percent, or S$40 billion ($33 billion at current exchange rates).

The percentage of the portfolio at risk grew at a time when Ho was increasing Temasek’s bets on China, emerging Asian economies and Western banks. The VaR has since dropped to 12 percent of the portfolio value, or S$22 billion, according to Temasek’s latest annual review.

Temasek has more risk tolerance than the Government of Singapore Investment Corp (GIC), a $300 billion manager of central bank reserves, which targets a return above the inflation rate of leading developed economies.


Temasek, which translates as “sea town” in Malay, has a sprawling investment business of some 200 companies, though just 30 or so make up 80 percent of the portfolio’s value – proof, some critics say, that Temasek should trim down and be more focused.

It took a beating on its finance industry holdings after the 2008 crisis, losing about $5 billion in stakes held in Barclays (BARC.L) and Merrill Lynch, now part of Bank of America. It has since trimmed its financial holdings by 4 percentage points to 36 percent of the portfolio. Last month, it sold a 1.4 percent stake in India’s No.2 lender ICICI Bank (ICBK.NS).

Sandrasegara acknowledges the heavy allocation to financials, but notes four major banks it holds are very good banks: Bank of China (601988.SS) (3988.HK), China Construction Bank (0939.HK) (601939.SS), DBS Group (DBSM.SI) and Standard Chartered (STAN.L).

Temasek needs to have “full financial flexibility” to be able to take opportunities as they come and ride out market cycles, he said.

“People know we have the liquidity to move quickly. That gives us the advantage.”

($1 = 1.2663 Singapore dollars)

(Additional reporting by Kevin Lim; Editing by Ian Geoghegan)