Thursday, 21 September 2023

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Temasek cuts senior management compensation after conclusion of internal review following troubled FTX investment

Temasek Holdings, Singapore’s state investment firm, has released a statement taking stern accountability measures after a disastrous investment into the cryptocurrency exchange, FTX, which led to significant financial loss and reputational damage.

On Monday, the firm announced that it had cut the compensation of its senior management and the investment team responsible for the FTX deal.

Temasek Chairman Lim Boon Heng disclosed that an independent team from the company had conducted a thorough internal review of the investment and presented the findings directly to the Board Risk and Sustainability Committee, as well as the board itself.

“Although there was no misconduct by the investment team in reaching their investment recommendation, the investment team, and senior management, who are ultimately responsible for investment decisions made, took collective accountability and had their compensation reduced,” he stated.

As part of their learnings from this incident, Temasek highlighted the need to strengthen their approach to reviewing the governance, management, and controls of portfolio companies, especially rapidly growing ones.

This move was triggered by the collapse of FTX in November 2022, following a damning report by CoinDesk about affiliated trading firm, Alameda Research.

Over the span of a few months, from October 2021 to January 2022, Temasek invested a total of US$275 million in FTX across two funding rounds. This investment constituted a mere 0.09 per cent of Temasek’s net portfolio value of S$403 billion as of March 31, 2022, but it made Temasek one of FTX’s largest external investors. The investment firm, which did not have a board seat, held only a 1.5 per cent stake in FTX.

The FTX debacle raised serious questions in Singapore’s Parliament in 2022. Responding to the controversy, Deputy Prime Minister Lawrence Wong emphasised that the loss should not be seen as a failure of Temasek’s governance system. He argued that no amount of due diligence or monitoring can completely eradicate the risks involved in investing. He also disclosed that Temasek had embarked on an internal review conducted by an independent team separate from the investment team.

Mr Lim, in his address to parliament, underscored that “there was fraudulent conduct intentionally hidden from investors, including Temasek,” as alleged by prosecutors and admitted by key executives at FTX and its affiliates. Even though there was no misconduct on the part of the investment team, they and the senior management accepted collective responsibility for the damage inflicted on Temasek’s reputation.

As of now, the exact amount of the compensation reduction has not been disclosed. Neither did Temasek mention how many or who have their compensation reducted.

The firm, led by CEO Dilhan Pillay Sandrasegara, aims to learn from this setback. It plans to enhance its investment evaluation process, with CFO Png Chin Yee stating to local media, “We will use this experience to further strengthen our approach on reviewing the governance, management and controls of a company based on the nature of the business, whether it is an early-stage or mature company. This is especially so if the company is growing rapidly.”

Temasek has declared that it will abstain from investing in cryptocurrencies and will exercise due diligence when considering new investments in the blockchain space. FTX was the only direct investment Temasek had in a digital asset exchange.

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