Singapore’s finance minister was summoned to parliament in the days following the spectacular collapse of crypto exchange FTX in late 2022.
Facing questions from his fellow MPs, Lawrence Wong — who would go on to become the city-state’s prime minister — was asked why Temasek, Singapore’s state-owned investment manager, had ploughed $275mn into the business just months before it went bust owing $8bn.
“What happened with FTX . . . has not only caused financial loss to Temasek, but also reputational damage,” Wong conceded.
Ho Ching, Temasek’s former chief executive, gave a blunter assessment. “A loss in what may turn out to be a badly managed company without adult supervision is egg on our face,” she wrote on Facebook.
Temasek would later dock the pay of staff who were responsible for the FTX investment, which included an eight-month due diligence process. But the failure was not the only blot on Temasek’s recent investment record.
The S$434bn ($330bn) investment manager has been beset by a litany of mis-steps, including from its forays in China and with start-ups. Singapore’s larger sovereign wealth fund, GIC, has avoided similar headline-grabbing losses, but its more cautious approach meant it had lower returns compared both with peers and the “reference portfolio” with which it compares itself.
In nominal terms and without adjusting for the amount of risk taken, the two state-owned investment groups are among the weakest performers among 50 similar global organisations over a 10-year period, according to Global SWF data, despite being among the largest and best resourced.
Over the past decade, each has averaged an annual rate of return of about 5 per cent in US dollar terms. Entities such as the Canadian Pension Plan and Ontario Teachers’ Pension Plan have performed more strongly, at 9.2 per cent and 7.4 per cent respectively, although exchange rate fluctuations can flatter those reporting in local currency terms.
“Their fund performance is the elephant in the room that nobody wants to talk about,” says Diego López, managing director of Global SWF. “You look at the 10-year returns and they are not very impressive. Both are at 5 per cent when the wider market has been growing much faster.”
The contributions made by GIC and Temasek — along with Singapore’s central bank — account for around 20 per cent of the city-state’s budget and have enabled it to maintain a surplus for much of the past two decades. Their ability to generate returns will become increasingly important as Singapore’s population ages and becomes more reliant on the state.
In recognition of the need to make its portfolio more resilient, Temasek is in the middle of a broad restructuring to improve accountability among managers. Behind the scenes, it has undertaken more direct measures, such as pulling back from investing in early-stage start-ups, while China now accounts for a significantly smaller proportion of its global portfolio. GIC, meanwhile, replaced two investment chiefs this year in its biggest leadership shake-up for eight years.
Both investors are bracing for increased market turbulence, as geopolitical tensions, inflation and disruptive advances in artificial intelligence threaten to increase volatility.
“They have had a tricky few years, but now they need to figure out how they can drive returns in the next five to ten years when there is so much noise in the markets,” says a Singapore-based chief executive of a Temasek-owned company.
“That is the big challenge for both of them.”
Temasek was set up under the city-state’s modern-day founder Lee Kuan Yew in 1974 to oversee 35 state-owned companies and leave the government to concentrate on policymaking and regulations.
The eclectic portfolio — which included utilities, former British naval yards, a hotel and a bird park — was initially valued at S$354mn. Among the constituents were 10 companies that Temasek continues to own large stakes in today, including DBS Bank and Singapore Airlines.
Under the leadership of Ho — a trained electrical engineer and wife of Lee Hsien Loong, Lee Kuan Yew’s son and the country’s third prime minister — Temasek invested heavily overseas in the past two decades. When she joined as a director in 2002, 94 per cent of Temasek’s portfolio was headquartered in Singapore. By the time she left in 2021, it had dropped to 49 per cent.
But the strategy was not without pitfalls. In one ill-fated move, Temasek lost as much as $4.6bn after helping bail out US bank Merrill Lynch during the 2007 financial crisis and selling its 3 per cent stake in Bank of America — which rescued its Wall Street rival — just over a year later at a steep discount. Public criticism over the loss was compounded when BofA shares rallied 70 per cent in the following months.
Despite such setbacks, the international expansion initially proved a success, with Temasek’s portfolio more than doubling in size in the decade to 2011. Its growth over the past five decades is mostly due to investment returns and proceeds from divestments.
Meanwhile GIC, established as the Government of Singapore Investment Corporation in 1981, was tasked with generating more returns from government reserves that had mostly been invested in safe and liquid but low-yielding assets.
Under the guidance of British investment bank NM Rothschild, GIC was given a broader mandate to invest in equities and bonds outside Singapore. Over time that has widened to include assets such as private equity, real estate and infrastructure. Lee Kuan Yew was GIC’s first chair — a role currently filled by Lee Hsien Loong.
“Investing is a hazardous business,” the elder Lee wrote in his 2000 memoir. “My cardinal objective was not to maximise returns but to protect the value of savings and get a fair return on capital.”
GIC has since grown into one of the world’s largest sovereign wealth funds on the back of slow and steady returns, along with periodic transfers of foreign exchange reserves from the Monetary Authority of Singapore, government surpluses and proceeds from the country’s mandatory savings system and land sales.
Though operating as private companies free to make their own investment decisions, Temasek and GIC are kept on a tight leash by the government. Both are wholly owned by the Ministry of Finance, which is run by Wong in addition to his role as prime minister.
Wong is also GIC’s deputy chair, while Teo Chee Hean, the recently appointed chair of Temasek, had previously been deputy prime minister and currently acts as a senior adviser to Wong.
Unlike most large investment institutions, GIC divulges scant information about its portfolio or performance. Its size is officially a state secret — though Global SWF pegs it at $936bn — and staff are required to sign non-disclosure agreements. This has led to calls domestically for more transparency around GIC’s holdings, which have become louder as the cost of living rises and citizens demand more support from the government.
A former senior executive at GIC, speaking on condition of anonymity, says the key difference between GIC and Temasek was that the former was designed to protect and modestly grow the nation’s reserves, while the latter’s main job was keeping a controlling hand over the country’s biggest companies.
“GIC doesn’t need to shoot the lights out; it needs to maximise whatever its ultimate owner — the Ministry of Finance — deems it should maximise for the public good,” the person says.
“On the other side, Temasek’s long-term influence on the domestic corporate side is huge. Yes, it runs a big global portfolio, but it’s more important to oversee the companies that are strategically important for Singapore’s development.”
Yet the performance of both GIC and Temasek in recent years has raised questions about whether they can continue to help Singapore’s government balance the books.
The past decade has been marked by volatility for Temasek’s portfolio, with a 24.5 per cent return in 2021, but losses in 2016, 2020 and 2023.
“If you look at [Temasek’s] returns, for the amount of risk they have been taking on, they are really quite disappointing, especially compared to GIC,” says Jerome Jamus Lim, associate professor of economics at ESSEC Business School and an opposition Singaporean MP.
In a statement, Temasek said the volatility in its portfolio was a reflection of the global market environment and its total US dollar return was 12.4 per cent last year. It added that because of its heavy exposure to equities and big commitment to domestic companies, its portfolio differed significantly to global peers, so comparison on performance was meaningless.
Under Ho, Temasek made big commitments to up-and-coming Chinese companies, including ecommerce group Alibaba, financial services company Ant Group and retailer JD.com. By 2020, China accounted for 29 per cent of the portfolio, having overtaken Singapore to be the biggest geographic base. But more recently, China has suffered an economic slowdown and government crackdowns against its tech sector.
Since 2021 when Ho was replaced as chief executive by Dilhan Pillay, a former corporate lawyer, Temasek’s Chinese exposure has dropped to 18 per cent. In recent months, it has significantly reduced its holdings in Alibaba, JD.com and NetEase, a games developer.
A further drag on Temasek’s investment returns has been its exposure to some unlisted companies, which account for half its investments. In addition to FTX, Indonesian agritech business eFishery, in which Temasek was an investor, imploded last year after allegations of fraud. Several other Temasek-backed start-ups have failed in recent years, though the manager has also had success with companies like Dutch payments business Adyen and US food delivery company DoorDash.
Following these failures, and responding to rising interest rates — which push up borrowing costs and make it harder for private companies to go public — Temasek has pulled back from investing in early-stage companies.
“Without Temasek, there would be no venture capital market in south-east Asia,” says Looi Wen Jie, co-head of investments at Jelawang Capital, the venture capital arm of Malaysia’s Khazanah Nasional sovereign wealth fund. “They were the biggest allocators in the region for a long time. But their pullback has really affected the market and meant other investors like ourselves have had to step in.”
GIC, meanwhile, has consistently underperformed a reference portfolio made up of 65 per cent global equities and 35 per cent bonds. GIC is at pains to say that the reference portfolio is not a benchmark, rather an expression of the level of risk that the finance ministry is prepared for GIC to take. Yet in its annual reports, GIC frequently compares its asset allocation, returns and volatility to those of the reference portfolio.
GIC’s annual return has lagged behind the reference portfolio by 0.5 and 1.3 percentage points over 20 and 10 years, respectively. Over five years, the underperformance is even more stark, with GIC behind by 3.1 percentage points. However, over each period, GIC’s volatility is markedly lower.
Senior managers at GIC say their explicit mandate from the finance ministry is to beat global inflation by a couple of percentage points, a yardstick it tends to perform well against. Yet assessing the portfolio make-up suggests several reasons why GIC has missed out on stronger returns over the past decade.
GIC ran a much lower-risk strategy over that period, when being more adventurous would have been handsomely rewarded. It had a much lower allocation to equities than the reference portfolio, with assets such as real estate and inflation-linked bonds becoming a bigger part of the overall pie. Within GIC’s equities portion, emerging markets have overtaken developed markets.
“Looking back, at least for the emerging markets space, the biggest disappointment has been that growth has not come as strongly as they thought it would in corporate earnings,” says a person briefed on GIC’s investment strategy.
“In a way, you could argue that the strategy of running a diversified portfolio has not necessarily paid off compared to most standard benchmarks, but we do think that the world has caught up and being diversified today makes sense.”
Just over a year ago, a highly rated Singaporean civil servant who had been tipped for a potential career in politics was drafted into Temasek to assess the organisation amid its choppy investment returns.
Gabriel Lim, a former principal private secretary to then PM Lee Hsien Loong, was named co-head of corporate strategy and tasked with helping implement a plan to make Temasek’s portfolio more resilient.
Over the summer Temasek announced a restructure, which will be put into action next year. This will see the manager split into three entities that correspond with the way it already divides its portfolio: controlling stakes in domestic companies, which as of March made up 41 per cent of assets; smaller investments in global businesses, which account for 36 per cent; and fund partnerships and asset management companies, which make up the remaining 23 per cent.
When announcing the changes in August, Temasek’s CEO Pillay said the central reason for the split was because the three groups were very different in the way they needed to be managed and benchmarked. Temasek says the new structure will allow it to have a “laser-like” focus on each entity.
Lim has since been made head of Seviora, Temasek’s asset management business, which oversees a group of fund companies that collectively manage $63bn. He is one of several Temasek executives being groomed as potential leaders for when Pillay steps down, which would be after 2030, according to people with knowledge of the succession plans.
“The changes are about moving away from producing big wins one year and big losses the next,” said a person briefed on the strategy. “Now the focus is on more consistent returns.”
It is not only structural change that Temasek is focused on. The investor is taking a more concentrated approach to its American holdings, focusing on large finance companies and big tech groups, as well as US-listed businesses that mostly operate in Asia. Unlike Norway’s sovereign wealth fund, which owns stakes in more than 8,500 companies globally, Temasek is increasingly taking bigger stakes in a smaller number of businesses.
Among Temasek’s biggest US-listed holdings are asset management behemoth BlackRock, in which it owns a 3 per cent stake; credit card companies Visa and Mastercard; tech companies Amazon, Alphabet, Meta, Microsoft and Nvidia; as well as New York-traded shares in Asian businesses such as PDD and HDFC Bank.
This approach of writing bigger cheques to a smaller number of companies can also be seen in India, where it bought a 10 per cent stake in snack maker Haldiram for $1bn this year, and in Europe, where it recently increased its stake in Italian high-end suit company Ermenegildo Zegna, also to 10 per cent.
In the Middle East, the focus is more on encouraging its portfolio companies to enter joint ventures and win contracts rather than investing in local businesses. Several Temasek-owned companies opened offices in the Gulf in the past 12 months and a year ago the investor took a trade delegation of representatives from its portfolio companies to the region.
While GIC is not undergoing restructuring on the scale of Temasek, it did shake up its investment leadership this year, replacing longtime group chief investment officer Jeffrey Jaensubhakij with his deputy, Bryan Yeo, while also replacing the CIO responsible for infrastructure.
The changes made by Singapore’s two big investment groups will be put to the test in the coming years.
“They are truly global investors and are looking around the world, which is fragmenting,” says the chief executive of the Temasek-owned company. “I’m not sure I envy their situation.
“Singapore is going to need more and more contributions from them in the coming years — the burden on them is going to be quite heavy.”
Additional reporting by Toby Nangle in London
