Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

For Singapore's state investment firm, one swallow does not a summer make.

"We are a generational investor," says the latest annual report of Temasek Holdings Pte, "investing for generations to come."

By that yardstick, the firm's numbers released on Tuesday are a mixed bag. A swallow of a 13 percent one-year return is chirping cheerily -- but nobody can quite claim it's summer yet.

That's because last year's stellar performance merely pushes up Temasek's 10-year return to 4 percent in Singapore dollar terms. The 20-year return is a more respectable 6 percent.

How Green Was My Valley
Singapore state investment firm Temasek Holdings has chalked up total returns of 15 percent annually since inception, but only 6 percent over the past 20 years
Source: Temasek annual report
*Singapore dollar annualized total shareholder returns

Taking an even longer view, the firm has been a remarkable wealth creator at least for one particular generation of Singaporeans. Take a 17-year-old in 1974, the year of the state investor's founding. Investing $10,000 on this person's behalf, Temasek has generated $4 million. This individual is unlikely to say, "I wish you'd given me the $10,000, instead of making $4 million for your shareholder -- the finance ministry."

There still are Singaporeans who complain about how little interest the government pays them on provident funds. Temasek doesn't manage any of that money, but try telling that to former professionals now driving a taxi. Overall, though, there's popular appreciation (at least among the older generation) of the cornucopia of corporate wealth -- S$275 billion ($199 billion) at last count -- that it commands at home and overseas.

Temasek, then, is Singapore's answer to Hong Kong's Li Ka-shing. Except that Li is all about serendipitous risk-taking, while Temasek was lovingly crafted by technocrats, and endowed with stakes in state-owned startups like Singapore Airlines Ltd., DBS Group Holdings Ltd. and the Singapore Zoo.

To that core local portfolio, it has in recent years added stakes in everything from banks (Standard Chartered Plc, China Construction Bank Corp., Industrial & Commercial Bank of China Ltd.) to e-commerce (Alibaba Group Holding Ltd.) and retail (A.S. Watson Holdings Ltd.). But can this designer baby create wealth for millennial Singaporeans just as well as it did for their parents' generation?

GIC Pte, Singapore's official sovereign wealth fund, this week disclosed its own 20-year return at 3.7 percent. This is a real return, though, in excess of the developed-country inflation rate that it is expected to beat. Stripping out Singapore's 1.6 percent average inflation rate for the past 20 years from Temasek's 6 percent return gives a figure of 4.4 percent, not very different from GIC's real performance. And the latter, because it manages an unspecified chunk of Singapore's foreign-exchange reserves, takes less risk.

Given the possibility that global interest rates will remain low for another decade, Temasek may need to tweak its strategy to convince millennial Singaporeans of its utility. That's because 6 percent returns for the next 43 years would make a $10,000 kitty grow to just $122,000 -- that's nowhere near $4 million.

Michael Buchanan, the firm's head of strategy, told Bloomberg Television that Temasek is planning to buy more unlisted assets. Gadfly had applauded this shift a year ago. But it should perhaps be supplemented by a pruning of the firm's 29 percent exposure to Singapore. Most of the listed stocks it owns in the city-state are now for aging coupon collectors; they can promise dividends, not growth. Keeping only a few companies with steady and growing cash flows in the stable and using that firepower to scout for chunky deals in private markets is the way to go. 

Dividend income from portfolio companies is 19 times Temasek's interest expense, up from 13 times in 2013 -- clearly the firm has room to load up on leverage. 

Take More Risks, Temasek
Unlike Masayoshi Son's SoftBank, the Singapore state investor's dollar bonds trade at a small premium to U.S. Treasuries
Source: Bloomberg

Maybe repurposing Temasek as Singapore's SoftBank Group Corp. won't be a bad idea. Li Ka-shing, a.k.a. Superman, may be retiring when he turns 90 next year, but Masayoshi Son is having so much fun he let a youthful successor go last year so he could invest some more. That's something millennials relate to: having a good time while getting stuff done. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. To be sure, the operating companies have their own borrowings to service. Still, Temasek is stiting on cash and equivalents worth 5 times its S$7.7 billion debt due over the next decade.

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