(Disclaimer: All opinions expressed in this article belong exclusively to the writer)
An opinion was posted last week on Straits Times Forum on July 17th, alleging that Temasek’s record growth in portfolio value is really low by world standards, began circulating in some Singapore media.
The question, asked by a certain Alfred Chan, is certainly valid. While 24.5% returns look good, why are they less than half of what global stock markets have achieved at the same time?
MSCI World Index is a useful benchmark of its performance, which tracks the indices of 23 major economies, providing a summary of the performance of the developed world. Between April 1, 2020 and March 31, 2021, the same period that Temasek reported, it grew by 51%.
Is Temasek behind? Is Singapore’s most aggressive fund being mismanaged? Would the money be better spent if it was simply earmarked for some index fund, with no overhead, including possible salaries for its management?
You see, one-year yields tend to be very misleading, especially when framed in ways that support a particular point, which are distracting from a broader perspective.
We know that hundreds of billions of dollars in public money are not allocated in the short, but in the long term, which typically spans several decades.
But even year-on-year, no one was asking questions about MSCI World and other stock market indices last year, when Temasek lost 2.28% in the year ending March 31, 2020. Interestingly, the stock markets lost about 14 per cent, but somehow no one raised it then.
As you can see, they suffer from much higher volatility in Temasek’s portfolio.
Since it is public money, intended to support generations of Singaporeans, Temasek cannot accept the high volatility and risk associated with stock trading.
This is more true today than ever before, as global stock concentrations are the result largely of monetary and fiscal policies enacted by governments in different countries and their future consequences are uncertain.
After all, what goes up usually has to go down at some point.
While today it may seem that the bullish market will last forever, we must remember that the belief in endless growth is what underlies the worst financial crises, when people believe they cannot lose (like what happened during the real estate boom) in America, which caused the fall of 2008/09).
In understanding this, Temasek typically invests in selected companies and retains its stake in them for many years. It also distributes its bets in different regions and about two-thirds of its portfolio is currently in Asia, where the stimulus packages that cause stock prices to inflate are not as generous as in the West.
This diversification provides greater stability and lower risk, although it produces high returns. How high? It depends on the period you look at.
Slow and steady wins this race
While many people like to pick short-term figures, trying to frame them negatively for the fund, it’s multi-year performance that really matters.
Over the past ten years, Temasek has returned an annualized average of seven percent annually.
This adds up to 96.7% in total, which almost doubles the size of the investment in a decade. And its gap behind the MSCI index, which produced 110% in the same period, is noticeably smaller, with a lower risk profile as well.
However, at 20, the situation is quite different and has a significant margin. With an annual average of eight percent for two decades, Temasek has returned a whopping 366 percent, with MSCI World only appreciating 160 percent.
Which do you prefer now?
They say the retrospective is always 20/20. It’s easy to say that last year, putting money into global stocks was the most profitable investment. But if we take this short-sighted view, we could argue that it would have been better to put all the money in cryptocurrencies and win billions of dollars in the process …
The role of a fund like Temasek Holdings is not to play or speculate with public funds, but to place them in selected companies, including Singapore.
Rated role in the local economy
At this point, we must also consider Temasek’s special role in Singapore’s economy. It is not just an investment fund responsible for profitably multiplying previous reserves, but an active group active in the country’s flagship companies.
Approximately 25% of Temasek’s portfolio is invested in Singapore, in companies such as DBS, Singtel, Mediacorp, Port of Singapore, SMRT and Singapore Airlines, among many others.
As a government-owned shareholder, he supports companies that are fundamental to Singapore’s existence.
In one of my recent articles, I mentioned how Temasek helped SIA raise $ 20 billion not only to overcome the pandemic, which has decimated the aerospace industry, but also positioned the company to make the most of the final recovery, surpassing others regional companies to gain greater market share.
This, in turn, will strengthen the hub status of Singapore and Changi Airport, creating long-term benefits for the entire Singapore economy and the country’s geopolitical importance.
Temasek Holdings is also a shareholder in American BlackRock, the world’s largest asset management company, with which it recently launched a joint venture. Decarbonization partners, which will invest in environmental companies in the final phase.
Starting at US $ 600 million, they aim to increase them to $ 5 billion or more in the coming years.
This is not only a likely profitable investment (which can produce more than 20% per year), but it gives Temasek (and, by extension, Singapore) a stake in the green economy of the future that will replace at least some of the industries. heavy currently present in the city-state.
In other words, Temasek not only acts with financial returns in mind, but also Singapore’s strategic interests.
The consequences of these decisions will be reflected not only in the projected growth in shareholder returns, but also through negative effects on the local economy as a whole, and it is not something that should be ruled out. the light.
Since its founding in 1974, Temasek has played a critical role in building the country’s critical industries – telecommunications, logistics, banking, technology or engineering – which is not only economically important but also politically important.
Its impact cannot be reduced to a single figure chosen with cherries and must be seen in a proper context, for sufficiently long periods of time.
And, in this perspective, it is clear that it has not only provided remarkable returns (surpassing global stock markets in the long run), but has also played a strategic role as one of the engines of Singapore’s prosperity.
Featured Image Credit: Munshi Ahmed via Bloomberg