Temasek Holdings is a private investment company wholly owned by the Singapore government. As of 31 March 2020, Temasek manages a net portfolio of S$306 billion. Some notable holdings in the portfolio include Singapore blue chips like DBS Group, Singapore Airlines, and CapitaLand; and foreign stocks like Visa, Alibaba, and Meituan Dianping.
Temasek Review is an annual event in which Temasek executives examine the fund’s performance over the past year and share their thoughts on a host of topics from portfolio allocation to market outlook. We first attended Temasek Review in 2019, and were also invited to cover the event this year as we look at how COVID-19 has impacted Temasek and its portfolio of companies.
Here are 10 things I learned from Temasek Review 2020:
1. Temasek’s total shareholder return was -2.3% and its net portfolio value fell to S$306 billion in FY2020 mainly due to the impact of COVID-19. In comparison with the indices and past crises, Temasek’s portfolio was remarkably resilient despite the widespread losses caused by the pandemic.
This is coupled with the fact that Temasek’s financial year ended on 31 March 2020 when many stock markets were trading near their bottoms. Deputy Head of Singapore Projects, Yeoh Keat Chuan, explained that Temasek’s limited exposure to the travel, hospitality, and entertainment sectors helped to weather the impact caused by COVID-19.
2. Private companies now comprise 48% of Temasek’s portfolio. However, Deputy CFO Png Chin Yee explained that this was partly due to the bottom valuations of Temasek’s publicly listed holdings in March and that the subsequent run-up in prices since should see them comprise a larger share of the portfolio.
At the same time, the proportion of private assets in the portfolio has steadily risen over the years — in 2010, the proportion was just 23%. Yeoh explained that this was in line with the structural trends Temasek invests in where there are currently more opportunities in private equity.
Head of China, Wu Yibing, shared that COVID-19 has also accelerated some of these structural trends such as digitisation and the sharing economy. For example, the use of food delivery apps like Meituan Dianping increased during the lockdown in China, and the habit of ordering food online among younger consumers is likely to grow post pandemic.
3. China now accounts for the largest geographical market in Temasek’s portfolio at 29%, followed by Singapore (24%) and North America (17%). Png shared that as Temasek’s portfolio evolves, Singapore will naturally account for a smaller share as the Singapore economy is small compared to other markets, especially the U.S. and China.
She added that this shift also reflects the overseas expansion of Temasek’s portfolio companies that are domiciled in Singapore. At the same time, Temasek will continue to invest in Singapore and support the local ecosystem here.
4. Although the current geopolitical tensions between the U.S. and China could see Chinese companies being delisted from U.S. exchanges, Temasek believes that fundamentally strong companies will grow in value over time regardless of where they list. Wu reiterated that Temasek continues to look at resilient sectors which benefit from strong domestic consumption and long-term structural trends.
Pillay said that the relationship between the U.S. and China is critical as the these are the two biggest economies in the world and what happens between them has an impact on economies elsewhere. He added that the U.S. and China have been the top two destinations for Temasek’s investments in the last 5-6 years and will continue to be the case moving forward based on the structural trends that Temasek has identified.
5. Temasek is an early investor in Ant Group – the operator of Alipay, China’s largest mobile payment platform — which is being lined up for a potential US$200 billion IPO. When asked whether Temasek would sell any of its stake at the IPO, Png declined to give any details as she felt it was inappropriate to comment as Ant is still preparing for its listing. She shared that Ant has evolved China’s financial services industry by providing inclusive finance to large parts of the Chinese population through technology and data, and that there’s a lot of potential for Ant going forward.
6. Temasek was actively adding stakes to companies they liked during the second quarter of the year when market valuations were beaten down. Png revealed that Temasek increased their exposure in the payment space in Visa, Mastercard, and PayPal, and was also active in India and China as well. In May, Temasek added a US$3.5 billion stake in asset management giant, BlackRock.
7. As part of its ESG initiatives, Temasek achieved carbon neutrality in 2020 and aims to deliver net zero carbon emissions for its portfolio by 2050. Temasek also views that sustainability efforts can also deliver new investment areas. For example, Yeoh highlighted that 46% of the world’s arable land is already used for crops to feed livestock — which is unsustainable as the world population and demand for protein continues to grow. Due to this trend, Temasek believes that there is an investment opportunity in plant-based proteins and has increased its stakes in Impossible Foods, Memphis Meats, Perfect Day, and Califia Farms.
8. Pillay believes that Singapore Airlines is an exceptional company and will find a way to operate ‘as they did before’ in a post-pandemic world. The airline raised S$8.8 billion in June during a rights issue backed by Temasek as the aviation industry continues to struggle with the impact of COVID-19. Half of the capital raised has already been used and Pillay gave no details whether Temasek would lead another round of financing for the airline down the line.
9. Temasek implemented a company-wide wage freeze due to COVID-19 and its senior management took a voluntary cut in salary and bonuses to stand in solidarity with the wider community. Along with Temasek’s philanthropic efforts, the savings were channelled towards COVID-19 initiatives in Singapore and around the world. They include providing 11 million masks for Singapore residents and donating over half a million test kits overseas.
10. Up to 50% of Temasek’s dividends and expected long-term returns can be used for the Singapore government’ spending under the NII/NIR framework. Along with MAS and GIC, Temasek contributed around 20% of the government’s Budget in 2020. Due to COVID-19, the Singapore government announced four Budgets this year totalling S$193 billion to help the country deal with the effects of the pandemic. However, Png clarified that the NIR framework provides a guideline for what the government can include in its budget and is not reliant on cash flows received from Temasek.
The fifth perspective
Temasek Holdings is one the most widely-followed investment funds among investors in Singapore. Its long-term track record speaks for itself — Temasek’s net portfolio has grown from S$354 million in 1974 to S$306 billion today, delivering an annualised return of 14% over 46 years.
While it is understandable that retail investors may like to copy Temasek’s investment decisions because of its overall success so far, it’s important to remember that retail investors should never blindly follow a big-name investor as they each have vastly different investment goals and time horizons.