Published February 11, 2009

2 years of Temasek growth wiped out in months

Portfolio size shrinks to $127b from $185b; GIC returns also likely to fall

By EMILYN YAP

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(SINGAPORE) The global financial meltdown cost Temasek Holdings a $58 billion paper loss in eight months, the government revealed yesterday. And the Government of Singapore Investment Corporation's portfolio is expected to yield a lower than average return this year.

But despite the blows, the government has full confidence in Temasek and GIC to ride out the market downturn - and says they will produce solid returns in the long term.

Putting an end to market speculation on investment losses due to the worldwide financial crisis, Senior Minister of State (Finance and Transport) Lim Hwee Hua told Parliament yesterday that Temasek's net portfolio value fell 31 per cent from $185 billion at March 31, 2008 to $127 billion at Nov 30, 2008.

This means that almost two years of asset growth was erased on paper in a few months - Temasek's net portfolio value was $129 billion at March 31, 2006.

'The initial absolute figure (of $58 billion) may seem surprising,' said RBS regional strategy analyst Andrew Orchard. 'But if we look at this in the context of how markets have performed over the past 12 months, then (Temasek's) performance seems to be in line.'

As Mrs Lim noted, the drop in Temasek's net portfolio value was less than the fall in some regional equity indices. For instance, the MSCI (Singapore) lost 44 per cent and MSCI (Asia ex-Japan) shed 45 per cent over the same period.

No details were disclosed yesterday on how individual investments by Temasek have fared - something that MP Ho Geok Choo (West Coast GRC) asked about.

Mrs Lim said: 'It is in the nature of investments that some will lose money while others will make money.' The key is to weigh risks and returns 'so the portfolio will do well on an overall basis,' she said.

The financial fallout has threatened the value of Temasek's investments in major financial institutions such as Barclays and Merrill Lynch. The Financial Times estimated in January that the paper loss on Temasek's stakes in Merrill Lynch could exceed US$2 billion.

Temasek said last week that its current CEO, Ho Ching, will step down on Oct 1, handing over the reins to Chip Goodyear. It stressed that this was not related to Temasek's recent paper losses.

Returns aside, the spotlight also fell on Temasek's investment mandate - MP Inderjit Singh (Ang Mo Kio GRC) for instance, suggested that the state-owned investment company take up the task of rescuing local companies.

Mrs Lim turned down this idea, maintaining that Temasek invests on a purely commercial basis. 'If Temasek is asked to undertake a national agenda, it would in fact validate some of the concerns over sovereign wealth funds having political objectives, and may ultimately impede Temasek's ability to participate in investments internationally,' she cautioned.

Nevertheless, she added that Temasek and its companies will increase their local investment exposure as long as there are attractive opportunities. 'As to whether there should be another fund to rescue companies, this is an assessment that the government will have to make over time,' she said.

GIC is also unlikely to emerge unscathed from the tough investment climate. Mrs Lim said its 20-year average return at March this year will be lower than that in 2008 - but not 'sharply down'. GIC's 20-year average return was 5.8 per cent in nominal Singapore-dollar terms at March 2008.

Mrs Lim stressed that Temasek and GIC have long-term investment horizons - and the ability and resources to weather multiple economic and market cycles. 'The government is confident they will continue to deliver good long-term returns within the risk limits set,' she said.

Dim near-term projections aside, Mrs Lim reassured the Parliament that a drop in the value of investments will not translate to a large decline in funds for government spending. Several MPs such as Inderjit Singh had expressed such concern.

But Mrs Lim said that under the net investment returns (NIR) framework, the amount the government may spend takes into account expected annual returns over a 20-year horizon for assets held by GIC and MAS - not actual year-to-year returns.

'This reduces the volatility introduced to the government's Budget from fluctuations in the NIR contribution' and avoids 'a boom-bust pattern in government spending', she explained.