Temasek to invest more in private firms, PE funds
Print Edition
Singapore’s Temasek Holdings is shedding the skin of a sprawling sovereign investment house, cutting stakes in big publicly listed companies as it puts more money into growing private companies and private equity firms in search of better returns.
Under the guiding hand of Chief Executive Ho Ching, the wife of Singapore’s prime minister, the US$170 billion state investor is morphing into a leaner form. The firm’s returns have often lagged its own internal metric in recent years due to its focus on big stocks.
The evolving strategy at the world’s ninth-largest sovereign fund is significant to corporate and financial professionals across the globe. Temasek deals worth S$159 billion (US$126 billion) in the last 10 years have generated big bankers’ fees.
New-look Temasek is already showing that it will shed more stakes and be more selective in providing money to large, listed global companies that come knocking in their hour of need, as they did before and after the 2008 financial crisis.
Temasek has been seeking to sell a stake in Thai telecoms operator Shin Corp worth about US$3.1 billion by market value, and last week was arranging the sale of a stake in Seoul Semiconductor Co .
“Now they’re allocating capital in smaller chunks to these publicly listed firms, so that they are no longer a significant stakeholder in the company,” said Melvyn Teo, a professor of finance at Singapore Management University who has observed Temasek’s strategy closely over the years.
Temasek has also increased investments in unlisted companies, such as the US$500 million stake it bought in financial data provider Markit Group last year. Holdings of this kind accounted for 27 percent of its portfolio by the end of March 2013, up from 22 percent at end-March 2011.
“As an investor and owner, Temasek has full flexibility to deploy our capital across a range of company structures, geographies and sectors,” said Jeffrey Fang, a Temasek spokesman.
The imperative for the changing times at Temasek is straightforward: improve investment returns to meet management targets at the ambitious sovereign investor.
It posted a total shareholder return of 9 percent annualized over the last three years in US dollar terms up to March 2013. That outpaced the 6.24 percent rise in the MSCI AC Asia ex-Japan Total Return Index over the same period, according to Thomson Reuters data.
But Temasek’s own key metric — gains after the cost of capital — fell below its benchmark in two of the last three financial years. The benchmark is between 8 and 9 percent, its annual report showed.
Profitable funds
According to a report compiled by investment consultant Cambridge Associates, average rates of return at buyout and growth-equity funds rose across all regions in the 12 months ended in June 2013. US-focused funds led the way, posting an 18 percent gain, Western Europe-focused funds returned 13 percent, while emerging market funds delivered 9 percent.
Temasek does not break down returns from its private equity assets, which include firms run by its former officials. It funded Singapore-based Pavilion Capital, headed by former Chief Investment Officer Tow Heng Tan, that invests in North Asia, and the firm also co-manages some investments with Temasek, a person with knowledge of the matter said.
Hong Kong-based RRJ Capital, run by ex-Goldman Sachs executive Richard Ong and former Temasek executive Charles Ong, is another firm into which Temasek has invested. It also funded Seatown, a diversified Singapore-based investment manager that is headed by a senior Temasek executive, Jimmy Phoon.
The investment approach now coming to fruition is a far cry from the multi-billion dollar deals Temasek embarked on prior to 2008, garnering significant stakes in leading companies across Asia, Europe and the United States.
“Temasek is carefully staying away from ‘big-bang’ deals, which is a deviation from the past,” said a person who regularly presents investment ideas to the Singapore state investor. “There is no desire to take substantial positions or controlling stakes in companies anymore.”
(Reuters)
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