Temasek's portfolio falls by S$40 billion

Posted by Saeed Azhar and Kevin Lim under Policy Watch on 29 July 2009

As Temasek flounders and tries to grope its way out of the massive losses, where is the accountability to Singaporeans?

Singapore state investor Temasek said its portfolio slid by at least $27 billion, or more than a fifth, in the year to March but it will stick with banks and sees opportunities in food and energy.

The fund saw potential in Asia and Latin America and was comfortable with financial services as its core portfolio holding, despite being hurt by losses on high-profile investments in Western banks after the market meltdown last year, CEO Ho Ching said on Wednesday.

"At this point, we are still comfortable with the financial sector as a core sector that reflects the key economies we are interested in," Ho said at a seminar.

She acknowledged, however, that the increased regulation of the financial sector may result in the rate of returns falling.

"In terms of sectors specifically, we are agnostic, we don't have a sectoral target," she said, adding the fund would look at food and energy, but did not give further details.

Sovereign wealth funds from Asia and the Middle East drew attention and some criticism after investing billions in Western banks at the start of the credit crisis. Despite big losses since, the funds are still seen as a potential source of capital.

Temasek [TEM.UL] suffered an estimated loss of over $4 billion when it sold its stakes in Bank of America (BAC.N) and Barclays (BAC.N) earlier this year.

With 40 percent of its holdings in financials, Temasek's portfolio lost nearly a third in the eight months to November, sparking unprecedented criticism in Singapore about its strategy.

Ho did not give the exact portfolio level as of March 2009.

"In our Temasek Review last year, we reported an annual value-at-risk of almost S$40 billion ($27.8 billion) last March. This meant a 16 percent probability for our portfolio value to drop more than S$40 billion by March this year. Indeed, it has turned out to be so, and more," Ho said in a rare speech.

Temasek, whose sole shareholder is the Ministry of Finance, had S$185 billion in assets as of end-March 2008, which fell to S$127 billion as of November 2008. For a factbox on Temasek and its investments see [ID:nSIN129364].


Despite the portfolio fall, Temasek has backed the rights issues of Asia-focused Standard Chartered (STAN.L) and Singapore's DBS Group (DBSM.SI), and boosted its stake in China Construction Bank (601939.SS)(0939.HK).

"Banks are one of the best proxies that can benefit from the growth of the economy," said Wong Kok Hoi, who helps manage $1.5 billion in assets as chief investment officer of APS Asset Management.

Wong, who attended Ho Ching's talk, also said it made sense for Temasek to invest in food and energy for diversification as these sectors were critical in economic development.

Ho's remarks on Temasek's investment losses and strategy were her first public comments since Temasek said last week Charles "Chip" Goodyear will not become CEO due to differences over strategy. [ID:SIN435934]

Ho, who is also the wife of Prime Minister Lee Hsien Loong, did not elaborate on the differences between Goodyear and Temasek.

"I just want to reaffirm that the decision was both mutual and amicable. We continue to hold Chip in very high regard for his professionalism and his integrity," she said.

Goodyear, who would have been Temasek's first foreign CEO, was widely expected to trim Temasek's financial holdings and move aggressively into commodities and energy and into emerging market infrastructure and consumer retail sectors, analysts and bankers have said. [ID:nSIN190820].

Ho said Temasek would continue to look at internal and external candidates for her replacement.

She said the fund's performance would hurt staff bonuses, leading to a second year of cuts to the bonus pool.

($1=1.439 Singapore Dollar)

(Editing by Neil Chatterjee and Lincoln Feast)

Sources and Relevant Links:

Reuters UPDATE 2-Temasek eyes food, energy after portfolio slump 29 July 2009

The Sydney Morning Herald Lumbered with the boss's wife 30 July 2009

Littlespeck Struggling with the new realities 1 August 2009

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