Pegging Temasek Holding’s Performance to Performance of Broad-based Market Indices
Ministry of FinanceSpeakers
Summary
This question concerns whether the Government assesses and publishes Temasek Holding’s performance relative to broad-based market indices and risk-adjusted metrics like the Sortino ratio. Mr Leon Perera asked for the evaluation methods used for Temasek and GIC and if these comparative results could be made public. Minister for Finance Lawrence Wong stated that the Government uses multiple indicators and risk-adjusted returns focused on long-term performance rather than a single benchmark. He noted that Temasek’s active, bottom-up strategy in unlisted assets differs from cap-weighted indices, although Temasek provides comparisons against MSCI indices on its website. Information on returns and volatility is publicly available for both entities, allowing for the derivation of relevant risk-return ratios by the public.
Transcript
19 Mr Leon Perera asked the Minister for Finance (a) whether the Government assesses Temasek Holding’s performance in relation to the performance of broad-based market indices such as the Dow Jones Industrial Average and the MSCI World Index over the past 10 years; (b) if so, whether it will consider publishing the results of these assessments; (c) if not, how are assessments of performance made by the Government; and (d) whether the Government will consider publishing metrics on the performance of Temasek Holdings and GIC based on risk-adjusted performance metrics such as the Sortino ratio.
Mr Lawrence Wong: The Government does not assess Temasek’s performance using a single metric. Instead, we look at a number of indicators, including risk-adjusted returns. Our focus is on its overall long-term performance, not year-to-year.
We also take into consideration a range of factors when assessing Temasek’s performance, including its investment strategy and risk exposure. In particular, Temasek’s investment approach is different from that of a benchmark investor seeking to outperform a broad-based market index. Instead, as an active, bottom-up investor, Temasek will invest in a company based on its business and long-term growth potential. Another important difference is that Temasek invests across listed and unlisted assets. The latter are not covered by broad market indices.
The general market indices, such as MSCI World Index, are very broad indices with a wide range of stocks across different countries and industry sectors. The allocations across sectors and countries are typically based on the market capitalisation of listed stocks. Temasek’s portfolio composition is very different from these indices.
Having said that, market indices provide useful broad reference points as to how the overall market has moved over time. Temasek has presented such comparisons of its performance against various MSCI indices on its website.
Information on the returns and risk performance of GIC and Temasek’s portfolios is available publicly. GIC publishes both returns and volatility of its portfolio over various horizons. Temasek publishes its annual returns from which one can also derive its portfolio volatility and thus relevant risk-return ratios.