The Temasek Model

lotus999 SG

hope no one has posted this:

The Wall Street Journal
REVIEW & OUTLOOK
The Temasek Model
March 21, 2007; Page A18

China recently announced what could be the world's largest investment fund, with assets possibly totaling several hundred billion dollars. The fund draws on the model of Singapore's Temasek Holdings, a state-owned investment company. So it's worth asking: Is emulating Temasek such a good idea?

State-owned investment funds have gained currency because many Asian and Middle Eastern governments are sitting on huge foreign-exchange reserves, invested mostly in low-yielding U.S. Treasury bonds. South Korea and Malaysia have already created such funds; Vietnam, India and Dubai are examining the idea. The premise is that the public sector can kickstart investment outflows and invest more efficiently and productively than the private sector.

At face value, Temasek -- set up in 1974 as a holding company "to hold and manage the Singapore government's investments in companies for the long-term benefit of Singapore" -- looks like a great success. Its portfolio has grown to S$129 billion ($84 billion) from S$350 million ($228 million), according to its 2006 annual review. Last year, the company reported an 18% total shareholder return, compounded annually and measured by market value, since its founding. Group net profit hit S$13 billion last year, a 71% rise from the prior year. Temasek's average dividend yield to its shareholder -- the Singapore government -- stands at more than 7%, which isn't shabby.

The trouble is, most of Temasek's claims have to be taken on trust. Under Singapore law, Temasek isn't required to release audited financial statements. Under CEO Ho Ching, Temasek started doing so anyway in 2004. But the statements are limited. Temasek releases only consolidated accounts, so cash flows between its subsidiary investments and the holding company aren't detailed. Historical financials are provided only back to 2001, which means some claims -- such as that 18% compounded shareholder return -- can't be independently verified.

That may work OK in Singapore, where the civil service has a reputation for clean management. But China's bureaucracy has proved to be riddled with corruption. Party leaders are probably attracted to the Temasek model because their power rests on keeping a tight grip on information and capital. How profitably, and properly, will an opaque Chinese agency reporting to the State Council manage billions of dollars without public supervision? Transparency aside, when was the last time a government agency made better investment decisions than the private sector?

Temasek grew out of the Singapore government's wish to distance itself from the management of its various state-created enterprises. But since Ms. Ho was brought in, she's helped morph the company into an international investment fund, with the goal of splitting its portfolio evenly among Singapore, Asia and OECD countries. Does that mean that Temasek's main goal has shifted from domestic industrial strategy to something more akin to private equity?

That raises other questions: How much profit should be paid back to the government, how should that money be deployed, and -- most important -- who decides? China might want to prop up failing state-owned enterprises, or hand out cash to its acquisition-hungry energy companies. In Singapore, Temasek pays dividends back to the Ministry of Finance, which is financed by Singapore taxpayers. Yet Temasek maintains that it's run as a "commercial entity."

If you're as confused as we are, you're not alone. So is the U.S. Securities and Exchange Commission, which we're told has talked to Singapore about how its government-owned companies report their investments in U.S.-listed stocks. Under U.S. law, any investor that holds more than 5% of a publicly listed stock has an obligation to reveal that position. Temasek may be becoming more transparent, but its larger peer, the Government Investment Corp., isn't. As GIC farms out more of its investments to outside fund managers, the SEC wants to ensure that GIC's aggregate ownership of a stock is made clear.

If China adopts similar practices, it may come under similar U.S. scrutiny, especially from a Democratic Congress itching for a fight. Even in Singapore, where public dissent about Temasek's practices is rare, an MP recently questioned a Temasek-led consortium's $1.9 billion investment in Shin Corp., a Thai purchase that Bangkok's military government is investigating for possible breach of foreign ownership laws.

"Perhaps it's a good time to take stock of the lessons learnt, and to consider Temasek's role in the management of Singapore's reserves and how it's carried out," the Straits Times reported nominated MP Eunice Olsen saying. "It's not unreasonable for a company that manages our reserves to be more forthcoming in explaining its decisions and sharing its assessment."

Well said.

lotus999 SG

latest update on temasek:

Ho Ching stays in Temasek
In Reuters interview, he dismisses talk that his daughter-in-law is moving to GIC.
Apr 25, 2007

Singapore's top investment agencies, Temasek Holdings and Government of Singapore Investment Corp. (GIC), will adopt different investment strategies and won't see a change in top leadership, Mr. Lee Kuan Yew said.

Minintser Mentor Lee, who is GIC Chairman, dismissed talk that Ho Ching - his daughter-in-law, who heads Temasek - may move to the GIC, a rumour that's circulated in Singapore's financial markets for weeks.

"Temasek will take higher risk for higher returns. GIC is more a pension fund," Lee told Reuters in an interview on Tuesday.

"We (the GIC) model ourselves on the US college funds, we study what the Yale fund does."

The GIC, which manages over US$100 billion in foreign reserves, invests in real estate, equities, currencies and other asset classes.

Last year, it said its annual return has averaged 8.2 percent in Singapore dollar terms in the 25 years to March 2006.

The GIC has said that it wants to increase its exposure to emerging markets, private equity and hedge funds because these provide opportunities for higher returns.

Temasek's portfolio, which includes stakes in big Singapore firms such as Singapore Telecommunications and DBS Group Holdings, was worth S$129 billion at the end of March 2006.

Ho, who is married to Prime Minister Lee Hsien Loong, joined Temasek in May 2002, driving its expansion abroad with the acquisition of stakes in Chinese banks and its ill-starred deal with Thailand's Shin Corp.

The state investor, which is owned by the Ministry of Finance, said last year that its total shareholder return by market value over the past 30 years was 18 percent a year.

However, in the past year, its performance would have been hit by its $3.8 billion investment in Shin Corp which it bought from Thailand's former prime minister, Thaksin Shinawatra, and his family, and which has halved in value.

The deal sparked a political crisis in Thailand and has led to a souring of relations between the two countries.
Reuters

Atobe SG

With China and now Japan both planning to adopt the Temasek way of managing better returns to State Reserves, Singaporeans will get to see how transparency is being managed by China and Japan compared to Temasek.

Temasek's performance will have to be benchmarked against two State owned companies that are modelled after itself, and this time around we will get to measure the worth of the million dollar talents that have been employed to manage Singapore Inc.

Japan eyes active state investment fund
By Michiyo Nakamoto in Tokyo

Published: April 22 2007 22:05 | Last updated: April 22 2007 22:05

Japan is considering establishing a special state investment fund modelled on Singapores Temasek to manage part of its $909bn in foreign exchange reserves and improve returns while mitigating the long-term impact of the countrys ageing population.

The idea is being discussed within a key economic advisory council headed by Shinzo Abe, prime minister, by the policy study group of the Financial Services Agency, and also within the ruling Liberal Democratic party. The discussions follow similar moves by neighbours China and South Korea.

Although the debate is in its early stages, any shift to a more active investment approach by traditionally conservative Japan would have a major impact on global markets. For the most part, the countrys foreign exchange reserves are invested in US Treasuries.

Japans declining birth rate means that by 2015 more than one in four Japanese will be 65 or over, while the working population is forecast to shrink almost 10 per cent by 2030.

A break-up of the countrys Government Pension Investment Fund, the worlds largest with assets of Y160,000bn ($1,347bn), is also being considered as part of moves to secure better returns for Japanese savings.

There is growing momentum behind the view that all sorts of [Japanese] public funds have to be managed effectively, said Kotaro Tamura, parliamentary secretary of the cabinet office for economic and fiscal policy and financial services.

One idea is for Japan to follow in the steps of Singapore and Scandinavian countries, which invest foreign reserves more actively and therefore obtain better returns. Mr Tamura said he saw Temasek, the Singapore governments investment arm, which invests in a broad range of companies both in Singapore and overseas, as the best example.

Policymakers are concerned the GPIF, which manages public pensions as well as the pensions of private-sector salaried workers, has grown too big and is securing only low returns, Mr Tamura said. According to the most recent figures available, the GPIFs return for April to December 2006 was just 3.63 per cent.

At the same time, there is concern that the GPIFs concentration of investments in Japanese government bonds is a risk.

The GPIF has a target for this year to invest 58.5 per cent of its assets under management in domestic bonds and 10.5 per cent in foreign bonds rated triple-B or higher. Just 17.9 per cent is to be invested in domestic stocks and 13.1 per cent in foreign stocks. It is not allowed to invest in alternative investment products.

Changing the investment stance of public funds would also go a long way towards making Japan a more dynamic financial centre, Mr Tamura said.

One factor behind Singapores development is that they brought in professionals to manage public funds and that led to the development of [local] professionals, he said.

Copyright The Financial Times Limited 2007

robertteh SG

From the above-stated news, it is clear that China and Japan have both reported that they will set up their government investment agencies to be modeled after Singapore's Temasek Holdings, a state-owned investment company.

Is it worth emulating Temasek model, some have asked.

Is it true that Temasek has indeed outperformed other investment funds elsewhere and has adopted accountable and transparent and good investment practices adopted by the world's best funds?

Back in 2005, Temasek has claimed that it has done well in its various investment overseas. A banker friend of mine wrote to the Straits Times to point out that Temasek's return over the past 18 years as claimed was actually very dismal as compared with returns by Harvard or Warren Buffet who achieved much higher return - as high as 45% pa.

What is certain and within the public's knowledge is that Temasek has failed to carry out proper and thorough evaluation of investments like Shin Corp resulting in heavy losses by the billions of its citizens' hard-earned retirement savings.

Had there been accountable and transparent investment processes such heavy losses of citizens' monies could have been avoided not to mention the political repercussions both to the host nation and to Singapore's own citizens who have lost over S$1.8 billion at least in such a fiasco deal.

Moreover, temasek has been able to invest in many overseas investments because of a system of taxing and recovering the fullest costs of services adopted by the autocratic system of government resulting in taxes being accumulated as surpluses for such investments.

There are all sorts of direct and indirect taxes being extracted of the citizens. Beside direct taxes the island state in the excuses of avoiding welfarism has resorted to farming out even essential government services to government linked privatised state entities resulting in such GLCs making all sorts of profits on lands and infrastructures which were sold by government to GLCs for great profits while GLCs continue with double taxing on the citizens to recover such asset costs which were already previously paid by the citizens.

Will the Japanese and Chinese want to follow such high-handed system of taxing and fullest cost recovering and double-charging by all the GLCs against is hard-pressed citizems.

Two years ago, as a result of Temasek claiming success, it was taken to task for performing below par as compared with other investment funds managed by Harvard University etc. Temasek had subsequently admitted this fact and agreed to model after Harvard or some other private equity model which is more accountable and transparent to shareholders.

If others want to model their funds after Temasek they should study such claims very carefully - whether they could afford using their citizens' hard-earned monies and lose them on impulsive acquisitions like Shin Corp etc and whether their own citizens could tolerate such high handed refusal to disclose basic information like processes of evaluations of investment risks before decisions are made on any investments.

Because of its lack of accountability and transparency so far the citizens have been confused and have refused to accept such claims of success.

Temasek appears to be unwilling to reveal what should be the most important information to its citizens - how Temasek evaluates its forays into ventures overseas like Shin Corp or Souzhou to justify its spending citizens' hard-earned monies which could generate jobs and investments back home where people are suffering from dropping wages due to loss of economc competitiveness in later years when government appears to be slow or unable to restructure to a broad-based knowledge application as accomplished by Korea, Japan and Finland.

The claims made by Temasek that it has achieved a return of 18% compounded shareholder return -- can't be independently verified.

Such a model depends entirely on the intuitions of political leaders and their appointees who might not have the full knowledge and expertise in all areas to evaluate risks as seen in Souzhou and Shin Corp and Optus and Global Crossing where losses run into multi-billions of hard-earned taxpayers' monies.

Temasek's political appointees therefore will have a hard time trying to convince its own citizens that it has made good investments.

Moreover citizens of Singapore are by and large still struggling to cope with their rising costs of living as a result of government raising taxes and recovering all costs of government services which no doubt is implanting the seeds of future political instability.

It is too early for Temasek to claim success until the processes in investment evaluation, and repatriation of profits are made accountable and transparent especially in the aftermath of billion dollar losses in Shin Corp, Global Crossing and others.

Atobe SG

China and Japan is adopting Singapore's way of managing the foreign reserves by establishing a similar 100% Government owned 'Private Corporation' to invest the huge amount of accumulated Foreign Reserves.

While China and Japan has a huge sum of accumulated Foreign Reserves that are BOTH DERIVE FROM EXPORT ORIENTATED INDUSTRY that will form the capital base of their 'Temasek', Singapore Foreign Reserves is largely an accumulation of wealth transferred from the Citizens to the Government Treasury.

Singapore's Exports numbers are no where near that of China and Japan - nor even that of Hong Kong, yet our Foreign Reserves have grown by leaps and bounds over since 1980.

Now that China and Japan is following Singapore's way in having a Temasek Holding to manage its Foreign Reserves, Singaporeans will have the opportunity to see how our Extra-Ordinary World Beating Government Leadership will justify their huge salaries, when our Temasek is benchmarked against the performance of China's and Japan's version of their 'Temasek Inc'.

robertteh SG

The local newspapers and all the elite civil servants, professors and experts keep singing praises to our so-called reserves to make it look like the reserves are created by the government.

It will be some years before the real problems behind creating those reserves willsurface. Sigh !!!

Herzog_Zwei SG

robertteh better learn how to spell properly like Suzhou, not souzhou.

robertteh SG

Thanks. Correction is noted.