By Kenneth Jeyaretnam
In an extraordinary turn of events the State Times published a letter in its Forum page yesterday from Temasek Holdings. It seems that last Saturday ST published an article ("Ways to improve CPF") which quoted an unnamed person as saying he suspected the Central Provident Fund Minimum Sum was raised "because Temasek or GIC lost money overseas". ( See more here)
Temasek wrote their letter in response to that comment and presumably to deny that rumour. I say it is extraordinary because not only does it fail to prove that CPF monies do not help to finance, even indirectly, the government's injections of capital into Temasek, but a large part of the letter is simply a setting out of current government CPF policy and an explanation of the PAP's stated reasons for increasing the minimum sum. You know, the one about increased life expectancy blah blah.
The letter was written for Temasek by Stephen Forshaw. Who made him spokesperson for CPF and for the PAP Government? As he works for Temasek but is now spelling out the PAP's justification for raising the minimum sum in CPF, he only adds weight to the argument that the two (CPF and Temasek) are co-mingled.
What will we have next? The Head of Standard Chartered (in which Temasek has a 20% stake) writing to ST to explain to us Singaporeans why women will have to start doing National Service? Or the head of Sheng Shiong writing to tell us why GST is being raised?
So does Forshaw actually dispel the fear that the minimum sum has been raised because Temasek has lost money and the government needs to get the money form somewhere else? No.
This is what he does say:
"As for Temasek's performance, we have more than doubled our portfolio value since 2002, excluding any net new capital.
“As of our last reporting date of March 31 last year, returns to Temasek for newer investments made since 2002, when we started investing directly in a growing Asia, have exceeded returns since 2002 for older investments made prior to 2002."
So, that's as clear as mud.
It seems Temasek is saying that positions put on since 2002 have done better in the 11 or so years up to 31 March 2013 than those before 2002 but again doesn't say whether this is from 1974 up to 2002 or, for example, 1992- 2002.
Is the date 2002 significant? Well, it could be that 2002 has been chosen for this division of performance into pre- and post-2002 because it is the year Ho Ching took over as head of Temasek.
But I believe 2002 was chosen because that date was during the post-9/11 recession and at the lowest point for the markets before the Great Recession of 2008, so of course anything after that is likely to look good, by comparison.
Temasek doesn't provide a link to the balance sheets or any other data. Critically for me or anyone wanting to study its performance, Forshaw doesn't provide information on the valuation criteria that Temasek uses. I am particularly interested in its unlisted positions. Again it comes down to transparency and public listing would achieve that.
Still this divide into older badly performing stock and the better performance post 2002 is worrying.
If I ran a fund in which all the longer term positions were performing worse than the newer ones, I would expect my investors to be concerned. Consistency is everything.
Of course it begs the question of why aren't the poorer, older performers culled. Or is there another explanation for recent out performance such as recession recovery or another more sinister explanation or even a bubble waiting to burst?
Actually I have already provided an answer for part of this previously when I highlighted the Olam takeover scandal. That kind of manoeuver allowed Temasek to put the complete purchase on the books as a profit because they had owned shares before what is widely believed to have been a leak in the takeover process, that pushed the share price up enormously. Other assets such as Changi Airport were transferred to Temasek for a 10th of their true market value. Instant profit.
Go back to the quote again and see that Forshaw tells us: "As for Temasek's performance, we have more than doubled our portfolio value since 2002, excluding any net new capital.” -
Let's look at that "new capital".
That is money that the government injects into Temasek from time to time. The government is able to inject money or assets into Temasek because of the constant stream of new investment it receives from CPF.
So Temasek is getting CPF money indirectly.
Temasek's answer to the public via the ST forum is economical with the truth to say the least. CPF may be invested elsewhere and not directly into Temasek or vice versa but it all comes from the same pot which is government capital or surpluses. As the CPF monies are available for the government to invest elsewhere, it frees up capital to inject into Temasek.
Let's look at that doubling of the portfolio value since 2002.
The S&P 500, the Hang Seng and most global stock indices have doubled over the same period since the low of 2002. So in other words if you had been investing in an index Fund and gone on holiday since 2002 you would have done as well as Temasek. Had Temask done nothing in that time, the simple fact of the market rising would have created the same doubling over that period. Bravo!
Temasek Holdings writes that it is not investing or managing CPF money. This is simply sophistry, and not the entire truth.
Money that the government receives from CPF savings goes to GIC and the profits that GIC earns investing those funds swell government surpluses, enabling the government to inject more capital into Temasek.
Furthermore, Temasek's own internal rates of return that it is supposed to earn on new investments will no doubt be related to CPF interest rates. Like everything else we have no disclosure on this but trust me, this is how it is done.
The question remains unanswered: Why is the Central Provident Fund Minimum Sum being raised ?
If you want to know more about Mr Forshaw here is the blurb from an interview he gave to mumbrella.asia – a site about Asian media and marketing.
Stephen Forshaw is the managing director of corporate affairs at one of Asia’s most powerful investment firms, Temasek Holdings. He is also managing director of Temasek’s operations in Australia and New Zealand, and president of the Institute of Public Relations of Singapore.
In this interview with Mumbrella Asia’s editor Robin Hicks, Forshaw – who was communications chief for Singapore Airlines and Microsoft before joining Temasek – talks about how corporate communications is changing, how brands should respond to disaster, and why he’s a big admirer of Shell.
"A big admirer of Shell”? You should be panicking by now. Shell is most recently mired in a Nigerian scandal but in 2004 [see link) was found to have cooked its books by wildly inflating its claimed oil and gas reserves resulting in an overstated potential profit of $100 billion!