From S$354 Million to S$306 Billion: 5 Lessons From How Temasek Invests
You have to hand it to Temasek Holdings.
Since its inception in 1974, Temasek has grown its investment portfolio’s net portfolio value (NPV) from S$354 million to S$306 billion (as of 31 Mar 2020).
For the uninitiated, Temasek is a global investment company based in Singapore.
The Minister for Finance, a body corporate under the Singapore Minister for Finance (Incorporation) Act (Chapter 183), holds 100% of Temasek.
However, it is managed like a commercial company and aims to and deliver sustainable long-term value for its stakeholders.
Like a commercial company, Temasek owns the assets it manages in its portfolio, is required to pay taxes, issues international bonds and is credited rated with Moody’s Investors Service (Moody’s) rates Temasek at Aaa while the S&P Global Ratings (S&P) rates them at AAA.
As an investor, there is a lot we can or cannot learn from their investment strategy and success that can be applied to your investment portfolio.
Here is what you need to know!
TL;DR: What You Can or (Cannot) Learn From How Temasek Invests
We will be exploring Temasek’s history, performance investment philosophy, and delving into what you can learn from how they invest.
This includes an explanation of why it is important to have a clear investment strategy and philosophy.
The importance of a long term investment strategy.
And staying calm and when it may be good to cut your losses.
In addition, we will cover why you cannot invest blindly in the companies Temasek is investing in as well.
But, we understand that it is impossible for retail investors to adopt Temasek’s portfolio since 48% of its portfolio represents holdings in privately held companies (or unlisted assets).
Also, the views expressed in this article are our own and do not represent Temasek.
Temasek’s first and only investors are the Singapore Government.
Back in 1959, the Minister for Finance Incorporated (MFF Inc), a statutory board set up by the People’s Action Party to invest government funds.
Over the years MFF Inc had accumulated a portfolio of share in 35 companies worth about S$354 million. This initial portfolio was transferred to Temasek in 1975 in exchange for 21 million shares.
Since then, Temasek has grown this investment portfolio and its assets mainly through prudent investments like its divestments, the dividends and other cash distributions it receives from its portfolio and the capital gains from its investments.
Temasek’s NPV has also tripled over the last 16 years. From 2004 to 2020, its NPV has increased from S$90 billion to S$306 billion.
Contrary to popular belief, Temasek does not manage our CPF, the official foreign reserves or even the Singapore Government reserves.
Temasek uses the Total Shareholder Return (TSR) metric, which measures the annualised performance of a company’s investment portfolio over time.
It accounts for the appreciation in stock prices as well as the dividends paid out to shareholders and is conveyed as a percentage as the compound annual growth rate. The Total Shareholder Return (TSR) is a compounded and annualised measure, which includes dividends paid to Temasek’s shareholder, who is the Minister for Finance and excludes capital injections from its shareholder.
Do note that this metric excludes the capital injections from Temasek’s shareholders obtained from borrowings and debt financings like the Temasek Bonds and Euro-commercial Paper Programme.
Temasek Total Shareholder Returns Over The Years (as at 31 Mar 2020)
If you look at Temasek’s TSR over the long term, Temasek has delivered 14% since its inception in 1974.
Also, for the last 16 years, (Mar 2004 to Mar 2020) its TSR was a compounded 7.5%
Over the medium-term (10 years), the is cut as Temasek’s TSR dropped with a 5% compounded TSR. The 20-year return to shareholder is at 6%.
Whereas for the short term, Temasek has performed respectably as its one year TSR stands at about -2.28% despite the fallout from COVID-19.
In comparison, these market indices in Asia and the world performed worse over the same time period:
- Temasek dropped -2.28%
- MSCI Singapore Index dropped -18.3%.
- MSCI AC Asia ex-Japan dropped -9.0%
- MSCI World Index dropped -5.8%.
Overall, Temasek has performed well over the long term, decently in the medium term and has only suffered a small drop in the short term.
How did they achieve this? Let’s look into their investment philosophy!
What is Temasek’s Investment Philosophy?
Essentially, Temasek is an active equity investor owner with long term strategic goals. The company invests for the long term and aims to achieve sustainable value for its shareholders.
Over the years, Temasek has diversified its portfolio, moving from investing in Singapore to investing all around the world.
Breaking it down further:
- 24% of Temasek’s portfolio is invested in Singapore
- 29% in China,
- 17% in North America
- 13% in Asia (ex Singapore and China)
- 10% in Europe.
This gives you an idea of where they invest.
Temasek recognised significant activities in the financial services, technology, and life science sectors. Financial services remained the largest sector in their portfolio (23%).
Breaking it down further:
- 23% of Temasek’s portfolio is invested in Financial Services
- 21% in Telecommunications, Media and Technology
- 17% in Consumer and Real Estate
- 16% in Transportation and Industrials
- 8% in Life Sciences and Agribusiness
- Transforming Economies
- Growing Middle-Income Populations
- Deepening Comparative Advantages
- Emerging Champions
Temasek aims to build a forward-looking and resilient portfolio of companies, through our Environmental, Social and Governance framework, that contributes to the progress of society and achieves a better world for this and future generations.
The resilience of the portfolio in times of crisis is something investors can look at too!
Based on these themes, Temasek extrapolates this further with these six structural trends that direct where they invest their capital.
1. Have a Clear Investment Strategy and Philosophy
Having a clear investment strategy and philosophy is something we can adapt from Temasek.
For example, Temasek invests in disruptive growth companies as it aligns with their long term investing approach. Temasek stated that they:
seek out companies that harness technological advancements to meet the needs of demographic shifts and other changing consumption patterns. Innovative companies may rapidly disrupt old business models, or create new consumption demand.
In the last year or so, Temasek has stepped up its investments into non-banking financial services such as Sheng Ye Capital, a supply chain finance company.
Sheng Ye has teamed up with PhillipCapital and fintech firm Advance.AI to compete for a wholesale digital banking license in Singapore.
Temasek has also invested in Ant Financial, a leading Chinese FinTech platform that is the backbone of the Alibaba groups payments.
Technology is also another sector that Temasek believes in. This led to investments in DoorDash, an online food delivery marketplace; Zomato, restaurant aggregator and food delivery startup headquartered in India; and Tokopedia, an Indonesia-based e-commerce company.
You also do not necessarily have to invest around themes.
Personally, my investment strategy revolves around investing for the long run, invest in companies and causes that you believe in.
And diversify your portfolio both among companies and market sectors.
2. Invest for the Long Term and Stay Calm
More recently, the Black Monday stock market crash in March 2020 affected some of its major portfolio positions like DBS, Singtel and Singapore Airlines.
On 21 Jul 2020, Temasek released preliminary numbers that stated its NPV has fallen about 2% from S$313 billion to S$306 billion.
In contrast, this rate of growth pales in comparison to the 12% increase in its net portfolio value from FY2017 to FY2018.
Temasek Net Portfolio Value (as at 31 Mar 2020)
31 Mar 2020
|in S$ billion|