Published February 7, 2009

The Ho Ching Effect on Temasek

How she changed the face and the portfolio of the institution

By VIKRAM KHANNA

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WHEN Temasek CEO Ho Ching steps down on Oct 1, it will mark the end - or perhaps a continuation - of a bold and ambitious innings that has transformed an institution.

A LEGACY Ms Ho said one of her aims at Temasek was 'to put in place something that goes beyond us from one generation to the next generation'

During her six years at Temasek, starting as executive director and then as CEO, Ms Ho has changed the investment company's inner makeup as well as its international profile.

When she came on board in 2002, after heading the Singapore Technologies group, the majority of Temasek's investment portfolio was domestically based, comprising mainly stakes in government-linked companies, which were later designated as 'Temasek-linked companies' (TLCs).

Under Ms Ho, Temasek refocused its investment strategy, making bold bets, first in Asia and then beyond. In terms of the geographic mix of its portfolio, Temasek set a broad guideline of one-third in Singapore, one- third in Asia and one-third in OECD countries. It also indicated that its strategy would centre on four themes: it would invest in 'transforming economies'; countries with a thriving middle class; in areas where it could deepen comparative advantages; and in emerging champions.

In keeping with these themes, Temasek began, from 2003 onwards, to take big, bold bets in Asia. Banking was reckoned to be a sector that would give broad exposure to the overall economy and many early investments focused in that area. Through its subsidiary Fullerton Financial Holdings, Temasek bought majority stakes in two Indonesian banks, Bank Danamon and Bank Internasional Indonesia, in which it also took operational control.

It also established Fullerton India Credit Company, which has grown to become one of India's largest microlenders. In China, it made investments in two large state-owned banks, China Construction Bank and Bank of China, as well as privately owned Mingsheng Bank. Temasek was also involved in several big private equity deals in India, including in Bharti Infratel, Tata Teleservices and Punj Lloyd. It also bought shares in large listed entities, including ICICI Bank and Tata Consultancy Services.

All of these investments yielded solid - and, in some cases, spectacular - returns.

More controversially, in 2006, Temasek, through various holding companies, invested in Thailand's Shin Corp, controlled by the family of then prime minister Thaksin Shinawatra. The investment led to a storm of protest in Thailand, partly on account of Mr Shinawatra not having paid taxes related to the deal.

Among other controversial investments, Temasek took a 14.7 per cent stake in Australian childcare provider ABC Learning, which went into receivership last November.

And in two high-profile deals made since December 2007, as the global financial crisis was unfolding, Temasek took significant stakes in Merrill Lynch and Barclays Bank - which have resulted in large paper losses, although Temasek has pointed out that it is a long-term investor.

The Ho Ching years have witnessed an exponential growth in the size, diversity and value of Temasek's portfolio, which has risen from around $60 billion at the end of 2003 to around $185 billion as at March 31, 2008. From being a relatively low-key (and largely domestic) investor, Temasek has become a globally-oriented investment house which is now looking at opportunities as far afield as Latin America and Russia. With the publication, annually since 2004, of the Temasek Review, it has also become a more open and transparent institution.

Investments aside, Ms Ho put a great deal of emphasis on institution-building within Temasek. This is evident in several areas. For example, in the area of staffing, whereas before her time Temasek's staff was almost entirely local, today they come from 22 countries. Forty per cent of Temasek's senior management team comes from outside Singapore. This has helped bring a greater diversity of perspectives and experience to the institution. In light of this, it should not come as a great surprise that Ms Ho's successor is a non-Singaporean.

Judging from successive issues of the Temasek Review, Ms Ho also appears to have spent a good deal of her time overseeing the development and refinement of systems and processes at Temasek, including the investment process; the risk management framework; the process of engagement with TLCs; the compensation system (which is based on incentives, but with clawback provisions if investments do not perform); investment performance measurement; as well as training and recruitment.

Temasek's initiatives in the areas of corporate social responsibility and community outreach have also multiplied, especially with the establishment in 2007 of the Temasek Foundation, which funds social programmes to help build capacities throughout the region.

At yesterday's press briefing, Ms Ho said that one of her aims at Temasek was 'to put in place something that goes beyond us, that goes from one generation to the next generation'.

Although she will step down during a difficult environment for an investment house, Ho Ching will leave behind a legacy of an institution that is cosmopolitan in its makeup, global in its capability and scalable in its potential. Notwithstanding recent setbacks, it is well equipped to cope with the challenges of an unstable, changing world.