Temasek – Murky figures and unanswered questions

Latest:
“We look at this speculation sometimes with irritation and sometimes with amusement because all of it is very far away from the truth, including those sources who claimed to be familiar with the situation.” – Temasek CEO Ho Ching on Charles Goodyear’s departure. (Straits Times)

Leong Sze Hian

In May this year, the Straits Times carried the following headlines on its front page:

Straits Times, Front Page, 29 May 2009

In Parliament in May, “The minister said Temasek’s $58 billion fall in value came after a ‘much greater gain’ of $114 billion over the preceding five years. ‘Even after taking into account the recent sharp decline, Temasek’s portfolio had still grown by $56 billion over the course of the cycle,’ he told the House” (“Temasek made big gains”, ST, May 28).

Now, we’re told Temasek Holdings has lost S$40 billion. (“Portfolio down $40b”, ST Breaking News, Jul 29).

So, does it mean that with the latest information available today, what took five years to accumulate ($114 billion from March 2003 to March 2008),  has  been lost  –  $58 billion  from  March  2008 to November 2008  and  at  least  $40 billion from  January 2009  to  March 2009 (over a total of just 11 months, excluding December 2008 for which we have no information) ?

This begs the question – when the Finance Minister gave the figure of a net gain of $56 billion in Parliament on May 27, did he know that at least $40 billion had already been lost from January to March this year – almost two months before his reply in Parliament?

The latest Straits Times report (29 July 09) says:

“Singapore state investor Temasek said its portfolio slid by at least $40 billion, or more than a fifth, in the year to March …  Ms Ho (CEO Ho Ching) did not give the exact portfolio level as of March 2009″.

Murky figures

Straits Times Online, 19 June 2009

I find it somewhat strange if not rather amusing to hear that we lost at least $40 billion. What does “at least $40 billion” mean? $41 billion,  $49 billion, or more? Why not tell Singaporeans the exact figure? And of course, without the exact portfolio level as of March 2009, we can’t even try to make any meaningful estimate, as we don’t have the figure for December last year. Since the “at least $40 billion” is “in the year to March”, we need the December 2008 figure. Why is it that we can be told the November 2008 figure, but not the December figure?

And what does “more than a fifth” mean? More than a fifth of what figure? We can’t tell much without knowing the relevant numbers.

Isn’t  Temasek’s losses, returns and portfolio values, like a never-ending jigsaw puzzle?

In the Wall Street Journal article, “Temasek recoups some losses” (Jul 29), it reported:

“We are certainly not happy with the negative wealth added in March last year as well as March this year,” Ms Ho said… However, the figures show that Temasek has recouped some of the initial losses made at the height of the financial crisis as global markets begin to rally on hopes that the worst of the downturn has passed.

Since the global equity markets have risen by about 50 per cent since 9 March 2009 (MSCI World Index), and “the figures show that Temasek has recouped some of the initial losses made at the height of the financial crisis”, why not tell us the losses to-date this year (June/July 2009), which surely must be much better than the “at least $40 billion” loss until March?

I hate to say this but not telling us more now will only make Singaporeans even more unhappy by not giving us the better figure now, compared to March.

I cannot understand the rationale for this . “We are certainly not happy” may be an understatement which is perhaps self-inflicted, with Singaporeans perhaps being subjected to more unhappiness than necessary.

Perks “deferred”?

As if to convince us that they would share the unhappiness of Singaporeans, “Ms. Ho said the bulk of incentives to senior management has been deferred by three to 12 years”. What exactly does this mean – no bonus, salary increments, performance incentives, etc, for years? Or just that they will still get them, only later (deferred)? What incentive is there for them to try to recoup the losses, if most incentives are deferred? What is “the bulk”? 51 per cent or 90 per cent?

I think it is probably about the best time now to disclose the remuneration and incentive packages for senior management. Otherwise, it may just fuel even more speculation and displeasure as to how people are being rewarded or penalised for losing so much of our reserves.

Exuberant confidence on hindsight

In her speech at the Institute of Policy Studies, Ms Ho said:

“In our Temasek Review last year, we reported an annual value-at-risk of almost $40 billion last March. This meant a 16 per cent probability for our portfolio value to drop more than $40 billion by March this year. Indeed, it has turned out to be so, and more.”

This sounds like exuberant confidence on hindsight – that we predicted and knew the risks.

In this context, given what has happend in this financial crisis, I think no financial institution CEO would have the gall to talk in such a manner about the veracity of its risk analysis model. Almost everyone may agree that with the near-death or collapse of some of the largest financial institutions in the world, nobody is boasting about their risk models, which have been shown to be almost useless as a predictive tool. I can’t help but feel that we may be the laughing stock of the world with such statements.

So, what are the probabilities and time frames for recouping the losses?

After Temasek said last week that Charles ‘Chip’ Goodyear will not become CEO due to differences over strategy”, there have been all kinds of speculation as to what these “differences over strategy” are. Nobody knows, but I can try to fathom a guess for one possible difference. If you are the new CEO and even you had difficulty figuring out the losses and returns, how would you ever be able to face Singaporeans, the world, and how would history judge you?

In the report, “Temasek to hang on to ‘family jewels’, allow public to invest” (Bloomberg, Jul 29), it says that:

“Temasek would consider over the long term creating one more group of stakeholders, and may invite the public to “co-invest” with the company. Ho said. It may seek “sophisticated investors” in five to eight years and retail investors in the next eight to 10 years, she added. “It is important to test this over at least one market cycle during the next five to eight years,” she said. “If this pilot is successful, we may then consider a co-investment platform for retail investors in perhaps eight to 10 years’ time”.

After all that has happened, I think the least that Temasek should do is to share its expertise and future returns with Singaporeans, instead of making us wait for up to 10 years, by allowing “sophisticated investors” to co-invest first.

Why does it take up to 10 years to test whether a simple concept like allowing others to co-invest can work?

It may be somewhat akin to adding insult to injury.

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Read also: Temasek losses: Enough is enough by Leong Sze Hian.

And: In a culture of secrecy, no courage is required by Ravi Philemon.

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