Temasek Holdings’ CEO explains why the fund has moved from 80% public equities to 47% and believes that private markets offer the highest returns.

Temasek Holdings' CEO explains why the fund has moved from 80% public equities to 47% and believes that private markets offer the highest returns.

Temasek Holdings: An Active Approach to Sovereign Wealth Funds

Sovereign wealth funds are often seen as passive managers of vast sums of money. However, Temasek Holdings, the Singaporean state-owned investment company with a portfolio worth $286 billion, stands out from its peers with its active approach to investing. In a recent discussion with ANBLE executives, CEO Dilhan Pillay Sandrasegara shed light on Temasek’s investment strategy, revealing a shift towards private markets and a focus on long-term returns.

From Holding Company to Investment Giant

Established in 1974 as a holding company for Singapore’s state-owned enterprises, Temasek has undergone significant transformations over the years. In the past, public equities and other liquid assets accounted for around 80% of its holdings. However, this has now been reduced to just 47%, while unlisted equities make up the remaining 53%. Pillay emphasized that the private markets offer substantial returns in the long run and are generally less volatile compared to public investments.

The Risks and Rewards of Startup Investing

While the private markets offer potential for significant returns, investing in startups is not without its risks. Temasek experienced setbacks in 2022 with two of its backed startups, Zilingo and FTX, facing troubles. Zilingo suspended its CEO due to financial irregularities, while FTX ended up bankrupt. Despite these challenges, Temasek reported a negative 5% one-year return for the fiscal year ending March 31, which, compared to the S&P 500’s 10% decline over the same period, can be considered a relatively decent performance.

Shifting Focus to the Developed World

Temasek has also shifted its investment focus from China to the developed world, particularly the United States and Europe. In 2011, China made up 26% of Temasek’s portfolio, while the Americas and EMEA accounted for only 6% and 5%, respectively. Presently, Temasek’s investments in the Americas and EMEA have increased to 33%, surpassing its China investments at 22%. According to Pillay, this shift was driven by factors such as an innovation-friendly economy, low interest rates, and the strength of the U.S. and Europe in life sciences.

Navigating Geopolitics and De-Risking

Investing in China has become increasingly challenging due to COVID controls, regulatory crackdowns, and a slow economic recovery. Moreover, geopolitical tensions between the U.S. and China have added another layer of complexity. The U.S. aims to prevent capital flow into strategic Chinese tech sectors, leading some investors to reconsider their China investments. Temasek and its sister sovereign wealth fund GIC have publicly expressed a cautious approach towards China investments to avoid running afoul of potential U.S. controls.

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The Warning of a “More Expensive” World

As investors grapple with the de-risking from China and other uncertainties, Pillay offered a cautionary message: be prepared for a “more expensive” world. He emphasized that resilience and security are not typically associated with low costs. While Temasek navigates changing landscapes and seeks opportunities for growth, the shifting investment landscape may require a willingness to incur higher expenses in pursuit of long-term stability.

In conclusion, Temasek Holdings stands out among sovereign wealth funds for its active investment approach. Its shift towards private markets and a focus on long-term returns reflects an evolving investment strategy. While there are risks involved, Temasek’s performance and adaptability in navigating challenges demonstrate its resilience. As it continues to explore opportunities in the developed world while cautiously managing geopolitical risks, Temasek remains at the forefront of sovereign wealth fund management.

See you tomorrow,

Nicholas Gordon