Assessment of Risk for Unlisted Assets in Portfolios of GIC and Temasek Holdings

14 Mr Leon Perera asked the Deputy Prime Minister and Minister for Finance (a) whether the valuation of unlisted assets in the portfolios of GIC and Temasek Holdings is taken into account when the Government reviews the overall risks of its whole portfolio of assets; and (b) if so, what approaches are taken by the Government to ensure that unlisted assets are valued realistically by GIC and Temasek at the time of injection and in each subsequent year.

The Second Minister for Finance (Mr Lawrence Wong) (for the Deputy Prime Minister and Minister for Finance): Mr Speaker, in reviewing the overall risks of the Government's portfolio, the Government does take into account the valuation of unlisted assets in GIC and Temasek Holdings.

These unlisted assets include private equity, infrastructure, and real estate. They are valued at the time of investment and then regularly updated. Both GIC and Temasek adopt valuation methods that are in line with industry practices and in accordance with international accounting standards. This includes independent valuation from valuation firms and testing for any potential impairment.

In addition, the entities are subject to an annual independent audit. As part of the audit, their auditors assess the reasonableness of the methodology used to value the entities' assets, including unlisted assets. To date, the auditors have not raised any issues about GIC and Temasek’s valuation practices.

Mr Leon Perera (Non-Constituency Member): I thank the Minister for his answer. Just one supplementary question. If you look at valuations of unlisted assets in the private equity sector, these valuations – which are done according to standard accounting practices – have been associated with a certain amount of volatility and change over time. I think it is in our interest to make sure that the portfolio valuations of the Sovereign Wealth Funds come as close as possible to the value that could be realised if these unlisted assets are sold eventually or if the unlisted company is actually publicly listed.

So, in the interest of achieving that kind of realism, would the Government consider requiring the Sovereign Wealth Funds to, in addition to publishing portfolio valuations based on these accounting practices for unlisted asset valuations that the Minister described, also publish more conservative figures for valuing the unlisted assets based on the cost of the acquisition, so as to serve as a kind of check on the extent to which that valuation would be realisable in the future?

Mr Lawrence Wong: Mr Speaker, the existing accounting standards are already conservative, in the sense that they require the valuers to ensure reasonableness of the methodologies and to test for impairment. So, even in private equity, the initial cost of investment is used as book value but subsequent to that, you can test for subsequent valuations because there will be other rounds of fund-raising, which allow you to have a market test of where the valuation of the underlying entity is. And if there is any potential impairment to the asset, the valuers are required to mark down and write down the asset value.

These are established accounting standards for valuation of private equity, which as I have said, GIC and Temasek fully comply with.