Temasek Assets Drop First Time in Seven Years on China Rout

  • Singapore state firm boosts telecom, media, tech holdings
  • U.S. now biggest country in portfolio after Singapore, China

Temasek Holdings Pte’s portfolio declined for the first time in seven years as its holdings, a quarter of which are in Chinese equities, were battered by last year’s market rout.

The value of Temasek’s stakes decreased 9 percent to S$242 billion ($179 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.

As global growth has slowed and the markets have been whipsawed by volatility, Temasek is reshaping its portfolio and tempering expectations for future returns. The state investment firm is cutting its exposure to banks while adding to holdings in media, telecommunications, and technology companies, with the latter group overtaking financial firms as Temasek’s biggest industry sector.

"The equity markets around the world will remain susceptible to bouts of volatility in the short and medium term,” Michael Buchanan, Temasek’s senior managing director, portfolio strategy and risk group, said in a statement. “There is increased uncertainty, partly reflecting the ongoing hangover from the excesses that help cause the global financial crisis. This suggests an environment of lower returns in the years ahead."

Temasek made a 6 percent annualized total shareholder return, including dividends, over the last 10-year and 20-year periods. The compounded total shareholder return since inception in 1974 was 15 percent.

The investment firm had more than half of its assets in China and Singapore, leaving it particularly exposed to a 21 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.

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

Divestment Pace

"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 the 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."

Temasek reduced its stake in China Construction Bank Corp., it said. Banks now make up less than 40 percent of its investments in China, down from 70 percent, while Temasek has diversified into sectors such as non-banks and technology, which now together account for 22 percent, and consumer and real estate with a combined 20 percent. China’s bad loans are surging, with nine of 15 respondents in a Bloomberg survey at the end of last month predicting a government-funded recapitalization of the banking system will take place within two years.

Temasek remains comfortable with its positions in Chinese banks: It increased its stake in Industrial & Commercial Bank of China Ltd. and invested in Postal Savings Bank of China. “There are challenges but in the long term, we still think that China offers significant growth potential. Our exposure to Chinese banks are mainly to the leading banks in the sector, with very liquid and defensible balance sheets,” Png Chin Yee, head of financial services and senior managing director of China, said.

The firm plans to open an office in San Francisco in mid-September to focus on technology and life sciences investments. Last year, it 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.

Among Temasek’s acquisitions of media and technology firms was an investment in home-sharing company Airbnb Inc., according to the report. Temasek also increased its investment in Didi Chuxing, a Chinese transportation network company. It also bought a stake in Cainiao, a data and technology-based logistics platform focused on e-commerce.

Management Changes

The state investor made fewer deals in the past year as Chief Executive Officer Ho Ching, who oversaw a more than doubling of assets since she took over in 2004, took a six-month sabbatical. Ho, who returned to work in October, oversaw the completion of 44 deals in the year ended March 31, down from 55 in the previous period, according to data compiled by the London-based Sovereign Wealth Center.

Temasek this year has made changes at the top echelons, reshuffling senior management as part of a succession plan as it navigates feeble global growth and market volatility from China to London. In October, it appointed Lee, the Temasek president who oversaw the firm while Ho was on sabbatical, as CEO of Temasek International, the management arm in charge of all staff other than the CEO and chief financial officer. In April, it appointed two new presidents and reallocated some functions across groups to allow it to face "challenging global times."

Unlike GIC Pte, Singapore’s sovereign wealth fund, Temasek almost exclusively invests in equities and has few restrictions on how much it can hold. Norway’s sovereign wealth fund, the world’s biggest, isn’t allowed to own more than 10 percent of any of its portfolio companies and seeks to have no more than 60 percent of its portfolio in equities.

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