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Temasek shifts stance on crypto investment following US$275 million FTX loss

SINGAPORE — Singapore’s sovereign wealth fund, Temasek Holdings, has said that it shifted its stance from a previous bold venture into the cryptocurrency market, stating that it is currently not seeking to invest in cryptocurrency firms due to regulatory uncertainty prevailing in the industry.

The group’s decision to invest in crypto firm FTX led to a write-down of over US$275 million (~ S$369 million) in November 2022.

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.

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.

During an interview with CNBC on Monday (7 Jul), Rohit Sipahimalani, Chief Investment Officer at Temasek, shed light on the company’s perspective and its cautious approach towards crypto investments.

When asked by CNBC’s reporter about Temasek’s potential future investments in cryptocurrency assets or exchanges after the FTX experience, Sipahimalani expressed reservations about further investments in exchanges.

He cited recent incidents and the prevailing regulatory uncertainty as the main reasons behind this cautious stance.

“I do think it’ll be very difficult for us to make another investment in exchange in the middle of all this regulatory uncertainty.”

“We’ve never been looking to invest in cryptocurrencies. Even the investment in FTX, we’ll be talking about investing in an exchange, which allowed us to get fee-based revenue without thinking [of] balance sheet risk or any trading risks,” he explained.

However, Sipahimalani admitted that Temasek now acknowledges that the exchange did not function as anticipated.

Regarding the possibility of future investments in crypto exchanges, Sipahimalani emphasized that Temasek would evaluate the situation based on the evolving regulatory landscape.

“If you have the right regulatory framework and we are comfortable with it, and you have the right investment opportunity I mean there’s no reason for us to not to look at it,” he said, “but  at this point of time we would not be comfortable investing in exchanges given the way things are right now.”

Temasek’s investment in FTX was part of its strategy to ‘explore new disruptive technologies’

However, Sipahimalani defended Temasek’s investment in FTX, stating that it was part of the company’s strategy to explore new disruptive technologies.

He further explained that early-stage investments, like FTX, are considered binary and risky, which is why the company relies on diversification to mitigate potential losses.

Despite this, Sipahimalani stressed that risks were mitigated by limiting the investment to less than 6% of its overall portfolio.

While Temasek acknowledged the diligence it performed at the time of the FTX investment, Sipahimalani expressed disappointment in discovering fraud and misrepresentations after the fact.

Sipahimalani admitted that uncovering such issues during due diligence is challenging but affirmed that lessons have been learned, and processes have been improved.

The interview with Rohit Sipahimalani on CNBC can be viewed here:

Temasek Holdings reports S$7.3 billion loss

Temasek Holdings on Monday revealed a 5.2% decrease in net portfolio value to S$382 billion in the financial year 2023, down from the previous year’s S$403 billion.

A significant shift from last year’s net profit of S$10.6 billion, the firm reported a loss of S$7.3 billion.

According to the group, this was primarily due to changes in accounting standards, including mark-to-market (MTM) gains and losses. When adjusting for MTM, the group would have posted a profit of S$14.7 billion.

This marks the first instance of a reported loss since the new accounting standards were implemented in 2018, said Temasek’s chief financial officer, Png Chin Yee.

Temasek cut the compensation of its senior management and the investment team responsible for the FTX deal in May this year

Responding to the questions raised about the FTX controversy in Singapore Parliament, 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.

In May 2023, Temasek Holdings 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.

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