Temasek Holdings goes back into black with S$7 billion gain and 1.6% return

Temasek Holdings has reported a S$7 billion (US$5.2 billion) increase in its net portfolio, buoyed by investment returns from the US and India that helped to offset underperformance in China. The state investor’s net portfolio was valued at S$389 billion as of 31 March 2024, up from S$382 billion the previous year, according to its latest annual review released on Tuesday.

While Temasek posted a positive annual shareholder return of 1.6 percent, this modest gain follows last year’s dismal negative 5.07 percent, the worst since 2016. This raises questions about the consistency and resilience of Temasek’s long-term investment strategy. The 10-year total shareholder return remained steady at 6 percent, and the 20-year return dipped to 7 percent from 9 percent, a decline attributed to the exclusion of the post-SARS recovery year of 2004.

Speaking at a press conference on Temasek Review 2024, Ms Connie Chan, head of financial services at Temasek International, said, “As our investments are primarily in equities, we’re not immune to year-to-year market volatility.”

Temasek, one of three entities responsible for investing Singapore’s reserves, plays a crucial role in funding the government’s annual budget. Under the Net Investment Returns Contribution framework, the government can spend up to half of the long-term expected investment returns generated by Temasek, along with those from the sovereign wealth fund GIC and the Monetary Authority of Singapore.

In an effort to align more closely with industry peers, Temasek refined its methodology for calculating its mark-to-market net portfolio value. This new approach, which uses market multiples of comparable public companies and other assessment methods for unlisted assets, values its mark-to-market portfolio at S$420 billion, up from S$411 billion the previous year.

Despite a net divestment of S$7 billion for the year ending 31 March, Temasek maintained a “cautious but steady” investment pace. The state investor invested S$26 billion but divested S$33 billion, including a significant S$10 billion from the repayment of bonds from Singapore Airlines and the redemption of preferential shares by Pavilion Energy.

Temasek’s investment strategy has been guided by four structural trends since 2016: digitisation, sustainable living, the future of consumption, and longer lifespans. These trends now constitute 39 percent of Temasek’s portfolio, up from 13 percent in 2016. Investments were made in sectors such as technology, financial services, sustainability, consumer, and healthcare.

Geographically, the Americas made up 22 percent of Temasek’s portfolio, second only to Singapore at 27 percent. Investments in China decreased from 22 percent to 19 percent of the portfolio, reflecting ongoing structural challenges despite the government’s pro-growth stance. Temasek is focusing on businesses serving the domestic market in China, such as biotech, import substitution, and the electric vehicle value chain.

“We’ve also been stepping up our investments in India, as we see more opportunities in consumer healthcare and financial services,” said Ms Chan, indicating a strategic pivot towards emerging markets with high growth potential.

However, the performance of Temasek has not escaped criticism.

Retired banker Chris Kuan commented on his Facebook, “I try to be even-handed about this. But no matter how you view it, Temasek’s performance is between mediocre and ho-hum, the latter meaning nothing to shout about and for quite some time now. Down 5.07% last year, up 1.5% this year. Over 10 years just 6%, over 20 years 7%. Pedestrian for an all equity portfolio with a very large, in fact majority, unlisted (or private) assets and a sprinkling of high-risk high-return VCs. To be real, if these are the returns generated, so be it. Just don’t praise Temasek like some godsend to the world of asset management or praise the key people like they are masters of the universe.”

For context, Norway’s sovereign wealth fund, the world’s largest, reported a record profit of $213 billion in 2023, driven by strong returns on equity investments, particularly in tech stocks. The fund achieved a 21.3 percent return on its equity investments, highlighting a stark contrast with Temasek’s more modest performance​.

Temasek’s diversified and forward-looking investment approach continues to build a resilient portfolio, but skepticism remains about whether it can deliver sustainable long-term returns amidst global economic uncertainties.