Temasek Reshapes Holdings in New Era of Subdued Market Returns

  • Singapore firm saw first drop in portfolio value in 7 years
  • Firm adding to stakes in technology, telecom companies

Amid feeble global growth and elevated volatility, Temasek Holdings Pte is reshaping its holdings and bracing for lower market returns.

The state investment firm, which on Thursday reported the first drop in the value of its stakes in seven years, has trimmed exposure to traditional banks, while it’s added to holdings in media, telecommunications, and technology companies. As a group, technology, media and telcos overtook financial firms as Temasek’s biggest industry sector for the first time in a decade. Temasek also embarked on a record pace of divestitures as part of the portfolio overhaul.

"We saw the liquidity-driven market rally earlier in the year, and took the opportunity to step up our divestment pace, relative to the past few years,” Lee Theng Kiat, who was appointed last year as CEO of Temasek International, said in a statement. “The record divestment reflected in part our plan to reshape our portfolio, in line with what we saw were the longer term trends, such as in the financial, life sciences or digital space."

Markets from Beijing to London this year have been whipsawed by shocks, with the most recent bout of volatility stemming from the U.K.’s vote to secede from the European Union last month. Investors the world over, from hedge funds to public pensions and sovereign wealth funds, are struggling to generate returns in line with previous years. The increased global uncertainty suggests an “environment of lower returns ahead,” according to Michael Buchanan, a Temasek senior managing director.

Portfolio Declines

The value of Temasek’s stakes decreased 9 percent to S$242 billion ($180 billion) in its fiscal year ended March 31, according to the Singapore state investment firm’s annual review released Thursday. Assets fell from a record S$266 billion in the prior fiscal year and dropped for the first time since the 12 months ended March 2009.

To see recent leadership changes at Singapore’s top state investment firms, click here.

The investment firm had more than half of its assets in China and Singapore, leaving it particularly exposed to a more than 20 percent slump in China’s CSI 300 Index and an 18 percent decline in Singapore’s Straits Times Index in the 12 months ended March 31.

Its stakes in companies in Singapore, where it is the biggest shareholder in about a third of the 30 members in the Straits Times Index, increased to 29 percent from 28 percent, while its China holdings, which include some of the nation’s biggest banks, were trimmed to 25 percent from 27 percent. North America holdings made up 10 percent.

‘Secular Trends’

“It seems that Temasek has finally started to allocate more to developed markets, particularly in North America for the past five years, allocating to healthcare and technology companies that provide innovative products and exploit secular trends of aging populations worldwide,” said Enrico Soddu, head of data at the Sovereign Wealth Center.

Temasek made S$30 billion in new investments in the 12 months through March, matching the previous year’s, while divesting a record S$28 billion.

The firm, which plans to open an office in San Francisco this year to scout for tech investment opportunities, loaded up on stakes in U.S. pharmaceutical and health-care firms including Alexion Pharmaceuticals Inc. and Regeneron Pharmaceuticals Inc., which develop treatments for serious medical conditions.

Temasek is looking into investing in big data, robotics and artificial intelligence, Buchanan said. The company put money into technology and sharing economy investments including Airbnb Inc. and Didi Chuxing, a Chinese transportation network company.

The Singapore firm, which said it is “comfortable” with a large proportion of its portfolio still being in financial services, is predicting changes to the banking landscape, as traditional lenders embrace technology and artificial intelligence to cater to customers.

Among the divestitures were Lloyds Banking Group Plc in London and Chinese maker of spirits, Kweichow Moutai Co.

The investor reduced its stakes in AIA Group Ltd. and China Construction Bank Corp., it said. Banks now make up less than 40 percent of Temasek’s investments in China, down from 70 percent, while the firm has diversified into sectors such as technology, consumer and real estate.

Temasek says Chinese banks still offer good growth.

“There are challenges but in the long term, we still think that China offers significant growth potential,” said Png Chin Yee, head of financial services and senior managing director of China. “Our exposure to Chinese banks are mainly to the leading banks in the sector, with very liquid and defensible balance sheets.”

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