Temasek Holdings' Planned Restructuring and Potential Impact on Investment Performance and Returns

The following question stood in the name of Mr Edward Chia Bing Hui –

12 To ask the Prime Minister and Minister for Finance (a) whether the Government is aware of the (i) mandates (ii) workforce sizes and (iii) manpower cost benchmarks for each new entity after Temasek’s planned 2026 restructuring; (b) if so, what are they; (c) whether the Ministry conducted assessments on the appropriateness of workforce size and manpower costs vis-à-vis investment performance, risk management and organisational nimbleness; and (d) if so, what are the results.

13 Mr Ng Shi Xuan asked the Prime Minister and Minister for Finance (a) whether there are circumstances under which Temasek Holdings is expected to accept lower financial returns when pursuing strategic or developmental outcomes under the investment mandates given by the Government; and (b) if so, how are such expectations articulated and governed, given that the Government does not direct or influence individual investment decisions made by Temasek Holdings.

14 Assoc Prof Jamus Jerome Lim asked the Prime Minister and Minister for Finance (a) whether the Government is aware if Temasek has a reference portfolio; (b) if so, what this is; and (c) if not, how does the fund benchmark its investment performance.

Mr Liang Eng Hwa (Bukit Panjang): Question No 12.

The Senior Minister of State for Finance (Mr Jeffrey Siow) (for the Prime Minister and Minister for Finance): Mr Speaker, may I have your permission to answer Question Nos 12 to 14 on today's Order Paper together?

Mr Speaker: Please go ahead.

Mr Jeffrey Siow: My response will also cover Question No 3 for written answer filed for today's Sitting, as well as the question filed by Mr Kenneth Tiong for oral answer at a subsequent Sitting. I would thereafter invite Members who have filed questions for this and future Sittings to seek clarifications if need be. If sufficiently addressed, the Member may wish to withdraw the question filed for a subsequent Sitting.

Mr Speaker, the Government's mandate for Temasek is that it should deliver good, sustainable long-term returns. The Government ensures that Temasek has a competent board to oversee its management but does not otherwise influence or direct Temasek's individual investment decisions.

With regard to Question No 14 on whether Temasek has any performance benchmarks, I had addressed this in the earlier reply; but in short, Temasek does not operate against a specific conventional reference portfolio as it is a direct investor, an investor that is bottom-up. Nonetheless, it does publish some indexes as reference, as I mentioned earlier, including the MSCI and the STI.

The Government expects Temasek to ensure that its overall portfolio of investments, including its Singapore-based Temasek Portfolio Companies (TPCs), achieves good commercial outcomes. Temasek actively and constructively engages its TPCs. From time to time, Temasek will work with the TPCs on strategic reviews and initiatives to strengthen their foundations for future growth. Temasek’s Singapore portfolio has been able to contribute steady returns to Temasek's overall portfolio and to Singapore’s economic growth over the long term.

Beyond exercising the appropriate oversight over its investments, there is no requirement for Temasek to pursue specific strategic or economic development strategies. Efforts to develop industry ecosystems or to enhance the financing for early-stage startups are led by the Government, rather than by Temasek. For example, Enterprise Singapore has a Startup SG Equity scheme, through which the Government co-invests with third-party investors in Singapore-based deep tech startups to catalyse the deep tech ecosystem.

And from time to time, Temasek may participate in the Government's initiatives, but it does so on commercial terms, strictly consistent with its mandate. For example, the Government has co-invested with Temasek in the Local Enterprises Fund, which aims to help large local enterprises transform and scale up; and the Anchor Fund which supports promising high-growth enterprises to raise capital through public listings in Singapore. Both funds are managed on a commercial basis by 65 Equity Partners, a Temasek-owned platform.

As Temasek expands its investment activities across new geographies and sectors, it may need to adjust its organisational structure to sharpen its focus and better achieve its objectives. And in this regard, Temasek has publicly explained the rationale for its latest restructuring. These are matters for the Temasek board to determine and the Government does not intervene in such decisions.

Ultimately, the Government holds the board of Temasek accountable for delivering good long-term returns on its overall portfolio and that is on the basis of net portfolio performance, after deducting all investment fees and expenses.

Mr Speaker: Mr Ng Shi Xuan.

Mr Ng Shi Xuan (Sembawang): I thank the Acting Minister for his answer. I have three supplementary questions. The first one being, how does Temasek assess Singapore-based companies' performance separately from their national and developmental roles? The second one would be, over the past decade, have unlisted investments outperformed listed assets and what are the factors that can explain any such of these performance differences? The last one would be, I understand that the Government assesses that the long-term performance has been satisfactory, but it is a long-term view – and that is good in the sense that we do not take any knee-jerk reactions. But in the event that it is deemed unsatisfactory, what levers does the Government have to rectify or act on their returns and investment?

Mr Jeffrey Siow: Mr Speaker, let me recap the three questions very quickly. Number one is whether or not, again, we should assess the performance of Singapore-based companies differently as part of Temasek's overall performance. Second is the performance of unlisted assets versus listed assets; how do we assess them? And then thirdly, how do we assess their short-term variations in performance and what do we do if that is affected?

So, on the first question, I have answered that as part of the previous Parliamentary Question. I think, first of all, for Temasek, we do assess them overall, looking at their broad mandate, whether or not they have performed to meet the mandate in delivering sustainable long-term returns. At the same time, we do work with them closely to understand the performance of the different groups of companies. Looking at how the Singapore portfolio companies perform, we do work with them closely to understand if they have performed in a certain way and to see how the performance of those companies can be specifically improved, because these are Singaporean companies and they are important to us. So, we do work with them on that basis. But in terms of assessing them overall as part of their mandates, that is not something that we look at more directly, as I have explained earlier.

As for the difference between listed and unlisted assets, well, unlisted assets, by definition, should generate higher returns because they have a risk premium associated with them. But I think the way Temasek values its unlisted assets, they take a conservative approach. What they do is they value them at the book value, less, I think, the impairment that comes with these assets, the potential impairment. And in their annual report, they do indicate a value if they were to mark these unlisted assets to market. And I think the Member can refer to the Temasek annual report on the website to get a sense of the difference in terms of the value of these unlisted assets.

Again, it is a variant of the question which another hon Member asked – which is, when should we worry? When should we worry if Temasek's long-term returns on their assets are not what is desired? I think we have to accept that as an investor with a larger risk profile or rather a bottom-up investor, the way it is an active investor, we should expect some volatility in Temasek's returns over time. But over the long period, these volatilities and these fluctuations should even out. And as long as they make what we require of them, which is something that is sustainable, that is something that is in line with their risk profile, in line with some of the decisions they are taking, including their capability building and investments in new areas, I think we should be able to accept that these are within our expectations and that they are delivering what they have been set out to do.

Mr Speaker: Assoc Prof Jamus Lim.

Assoc Prof Jamus Jerome Lim (Sengkang): My understanding is that Temasek currently holds about half of its portfolio in public assets and the remainder in private exposures. If you take a global benchmark, such as the ACWI IMI over a very long term, say 20 years, the returns are more or less about 7%. And this, as it turns out, matches Temasek's 20-year return of 7%.

That said, however, it appears to me that if we accept the state of affairs, Temasek is not successfully harvesting this illiquidity premium that, according to the Minister, it is trying to maximise according to its mandate. So, I wonder if the Minister would agree that maybe one strategy would be to take, for example, dividends issued by its privately held portfolio assets and then redirect those toward the public-facing exposures.

Mr Jeffrey Siow: I thank the hon Member for his question. I think we go back to first principles, which is that it is not always appropriate or meaningful to directly compare Temasek's performance with other funds. It really depends on the mandate and the risk profile that Temasek was set up to do.

As I explained in my reply, Temasek is not quite the same as a typical sovereign wealth fund. It is an active bottom-up investor, and it also has a history and development as a holding company for Singapore portfolio companies.

Nonetheless, as a comparison, I think Temasek's performance has, indeed, been commensurate with other sovereign wealth funds with a higher risk profile, such as the Canada Pension Plan Investment Board. Just as a comparison, both have achieved 20-year annualised total shareholder returns of about 8%.

So, the Government does expect Temasek to achieve good sustainable returns over the long term. And as an asset holder of major Singapore-based assets, we expect them to exercise appropriate oversights over their investments, no different from any other responsible asset holder. While we do not benchmark them to any specific reference portfolio and nor does it invest to meet the specific index returns, I think the Member can compare available indices to see whether or not it has, on the various aspects, met its expectations.

Inherently, I think Temasek's returns would be more volatile compared to funds with a lower risk profile. I think it has a mix of both listed and unlisted assets, as the hon Member has noted. The investment approach is one that we want them to do, which is to develop and build a diversified portfolio that reduces the volatility and outperforms a broad-based market index. And so, the Government will continue to engage them to do that. Beyond that, we will not go into exactly how the dividends are spent and what proportion of listed or unlisted assets they should manage. That is something for the Temasek management to decide and we will not interfere in those decisions.