A common defence against criticism of the high-profile losses suffered by Temasek Holdings by some people online is to share a chart of its net portfolio spanning over the past two decades.
The shared chart shows how the Singapore sovereign wealth fund (SWF) had an initial portfolio of S$77 billion in 2002 and gradually increased to S$403 billion in 2022.
While the increasing figures do look impressive on paper but we have to note that this chart is not showing Temasek’s profit over the years but the value of its annual portfolio.
If we were to show its portfolio alongside its annual profits, it does not seem as impressive as it should be. Given that one would expect a corresponding trend of increasing profit due to the larger portfolio possessed by Temasek.
Singapore Government’s Fund Injections Into Temasek
Singapore’s past reserves are derived from an excess of domestic savings over investment and/or a government budget surplus.
According to data from Singstat, the Singapore Government has reported an annual average surplus of about S$20 billion based on International Monetary Fund standards.
These surpluses are then held and managed in three distinct pots: the Monetary Authority of Singapore (MAS), GIC, and Temasek.
“As shareholder in Temasek, the Government injects capital into the company taking into account the long-term returns and risks associated with such investment. These capital injections are reflected in Temasek’s accounts and are made public.” wrote the Ministry of Finance in its explainer.
We do not know how much the Singapore Government allocates to each entity each year but it is a fact that Temasek’s portfolio contains injections from the Singapore Government over the past decades.
And while the Government states that the capital injections are reflected in Temasek’s accounts, one finds it hard to identify what are the exact sums of its transfers.
The Singapore Government, however, points out that it does not transfer funds to Temasek or GIC to improve their performance figures.
Transfer Of Government Assets To Temasek
One interesting aspect about some of Temasek’s assets is that they are often “sold” or “loaned” to the SWF at surprisingly low values.
Take Changi Airport for example which Temasek manages.
The Changi Airport Group (Singapore) Pte Ltd (CAG) was formed on 16 June 2009 and the corporatisation of Changi Airport followed on 1 July 2009.
Its revenue for the year was S$961 million, profit, after tax was S$227 million and total assets, were S$7.2 billion.
According to the CAG’s report for FY2009/2010, “the estimated consideration payable to CAAS (Civil Aviation Authority of Singapore) for the transfer of airport undertaking and other assets is $3,277,987,000.”
Also, the consideration will be funded via “a capital injection by the immediate holding entity, the Minister for Finance (Incorporated).”
While CAG is not transferred to Temasek as the Singapore Government still owns it, Temasek still runs the airport and benefits from its healthy profits — which does not make sense accounting-wise.
Other notable assets that are clearly profitable or monopolistic in nature that were sold or transferred in one way or another to Temasek, are Singtel, Singapore Technologies, Singapore Power (SP) Group which was privatised from the Public Utilities Board and PSA Corporation Ltd. Just to name a few.
To say that Temasek made a profit from its Singapore-based companies is much more believable than to suggest that it had profited from its high-profile investments overseas.
One has to also note the drop in Temasek’s portfolio in 2009 where it reported a profit of S$6.2 billion. From March 2008 to Dec 2008, Temasek sold three power stations in Singapore for a combined value of S$12.05 billion.
If not for the sale of the power stations to foreign consortiums, it might have seen red for the first time.
Private Equity In Temasek’s Portfolio Is Subjective
Chris Kuan, a former banker commented in 2016 about Temasek’s method of accounting when CNA reported that Temasek had said the decrease reflects share price declines of its listed investments, which was offset by the performance of unlisted assets.
He wrote, “I find this statement problematic. It is not fully conceivable at least in my view that there is such a divergence between the change in values between listed and unlisted assets. If there is a general downturn in asset values and especially since Temasek admits to the volatility and difficult investment environment, then these conditions affect both listed and unlisted assets in more or less the same way, notwithstanding special circumstances that may result in some assets holding up or even appreciating compared to others.”
“Nevertheless, to find losses in listed assets being offset in a significant extent given the portfolio size by unlisted assets then the question that pops to mind is how robust are the valuation or the assumptions under the valuation of the unlisted assets since being unlisted there is no transparent, quantifiable market price for them?”
Under the Singapore Companies Act 1967, Temasek is an exempt private company and is not required to publish its statutory consolidated financial statements.
Referring to Mr Kuan’s observation and Temasek’s legal obligation to disclose its finances, one would risk a POFMA correction direction in questioning the valuation of Temasek’s assets due to the situation of asymmetric information.
While MOF states that Temasek’s financial performance is scrutinised by bond rating agencies, which have given it AAA rating and that its financial statements are audited by an international audit firm (KPMG in 2022), still, the lack of public transparency of its investments and salaries of its top executives on top of its high profile losses over the years have made it hard to believe the performance of the SWF.
The recent write-down of its US$275 million investment in bankrupted cryptocurrency exchange FTX has spurred Members of Parliament from the Workers’ Party to file parliamentary questions on whether the two SWFs should be included in the audit ambit of the Auditor-General’s Office and oversight by the Public Accounts Committee.
In any case, the next time someone shows you the chart of Temasek’s annual portfolio over the past twenty years as “proof” of its achievements, just ask them if they are aware of the points highlighted in this article.