Last Sat (17 Jul), a member of the public, Mr Alfred Chan Hock Yuen, wrote to ST Forum commenting on the recent seemingly superb financial performance of Temasek Holdings (‘Temasek’s 24.5% return greatly underperformed against benchmark MSCI World Index‘).
Temasek reported that it achieved a 24.5% shareholder return last year, the highest since 2010. However, Mr Alfred Chan wasn’t impressed. He said, “A one-year return of 24.5 per cent sounds impressive until one realises that, over the same one-year period to March 31, the MSCI World Index went up by about 45 per cent.”
“The world markets have recovered massively over the past year or so and, as they say, a rising tide lifts all boats,” added Mr Chan.
“What was also interesting was that Temasek’s total shareholder return for the 10 years to end-March last year was 5 per cent per annum. Over this same period, the MSCI World Index went up by an average of about 7 per cent per annum.”
“How well has Temasek really been doing over the years? Is it reasonable to expect Temasek to at least beat the relevant market indices over the long run?” he asked.
In fact, if one was to invest in any ETFs tracking the MSCI World Index, one would get even nearly twice of Temasek’s return over the same period.
Temasek: We choose to lean in on carbon abatement and other goals for planet, people and prosperity
Today (21 Jul), Temasek replied on ST Forum, claiming that they have “confidence in the long-term potential of Asia”.
Mr Nagi Hamiyeh, the Joint Head of the Investment Group of Temasek, criticised that with the MSCI World Index, Temasek would be over-weighting US and other developed markets, with less than 10 per cent exposure to the Asian economies and certainly less than half a per cent to Singapore.
“Temasek has chosen not to do so. Fundamentally, we have confidence in the long-term potential of Asia,” Hamiyeh said.
“At the same time, we have been deliberately reshaping our portfolio towards longer term structural or secular trends like digitisation, sustainable living, the future of consumption, and longer lifespans.”
“Temasek’s current portfolio is the aggregate result of our bottom-up investment approach,” he explained. “We believe this is a resilient portfolio that can provide sustainable, long-term returns. Our portfolio value has quadrupled over the last 17 years, excluding any net new capital.”
Hamiyeh also added that Temasek has deployed capital to stimulate innovation and growth; develop human capital to uplift capabilities and enhance potential; enable natural capital to foster sustainable solutions; and seed social capital to transform lives for a more inclusive and resilient world.
Using carbon abatement and other goals as reasons, Hamiyeh said that Temasek returns may not necessarily be high but it helps the planet.
“Various key markets will likely see marginally better returns during the next decade or so if the world chooses to do nothing to abate carbon. However, the trade-off is an unliveable planet within our lifetime, and lower returns beyond the next 15 to 20 years,” he said.
“Going for high climate ambition may dent returns marginally for the next 10 to 15 years, but the payoff is a more liveable planet for all – alongside higher long-term returns. The choice is clear. Temasek has chosen to lean in on carbon abatement and other goals for planet, people and prosperity.”
“That’s why Temasek chooses to work with companies on their carbon transition journey,” he concluded.
In any case, according to information on Temasek’s website, it explained why Temasek was established in the first place:
“Temasek was incorporated under the Singapore Companies Act in 1974 to own and commercially manage investments and assets previously held by the Singapore Government. This allowed the Ministry of Finance to focus on its core role of policymaking and regulations, while Temasek would own and manage these investments on a commercial basis.”
That is to say, Temasek was incorporated as a profit and loss company to begin with, and not for “carbon abatement” or achieving any other goals for “planet, people and prosperity”.
This is supported by Deputy Prime Minister Heng Swee Keat’s written reply to Workers’ Party Member of Parliament Leon Perera back in 2016 where he wrote:
“The individual investments of GIC and Temasek are the responsibility of their respective management teams, while the Government monitors the performance of their overall portfolio. GIC and Temasek operate on a purely commercial basis in order to maximise long-term risk-adjusted returns, and the individual investment decisions are fully independent of any Government interference or influence. This is an important governance principle that we seek to maintain.”
No set hard carbon targets
Temasek in a press conference on 13 July, said that it does not set hard carbon targets that its portfolio companies must meet to avoid divestment.
Nagi Hamiyeh, Temasek International’s investment group joint head and head of portfolio development noted that Temasek’s carbon-avoidance approach differs from Norway’s sovereign wealth fund, which divested from five global coal firms in May 2020 based on stricter coal criteria.
Business Times quoted Mr Hamiyeh, “If our investee companies are trying to decarbonise and we can be helpful, we’d rather do that, because being serious about sustainability is not pushing the problem to somebody else. We’d rather deal with it ourselves,”
It remains “open” to investing in carbon-emitting firms where appropriate, “as long as we have a clear line of sight to the decarbonisation journey”, said Mukul Chawla, Temasek International’s joint head of TMT and joint head of North America.
“The journey is in fact what we would like to partner with companies on. We would like to support them there,” he added.