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Temasek Holdings Records First Annual Shareholder Negative Return since 2020
Challenging Macroeconomic and Geopolitical Environment Impact Temasek's Performance
Singapore's state investment company, Temasek, experienced its first annual shareholder negative return since 2020 due to the challenging macroeconomic and geopolitical environment. In the financial year that ended on March 31, the company posted a 5.07% decline in its one-year total shareholder return in Singapore dollars, with a net portfolio value of S$382 billion compared to S$403 billion the previous year. This negative return was only the fifth one-year decline since 2003.
The Impact of Global Stock Market Returns
Despite the decline in Temasek's shareholder return, it fared relatively well compared to global stock market returns. The S&P 500 and MSCI Asia ex-Japan benchmarks both experienced a nearly 20% decline in 2022, primarily due to sticky inflation and geopolitical tensions. In contrast, Temasek's decline was less severe, reflecting the company's resilience in a challenging market.
Composition of Temasek's Portfolio
Temasek's portfolio is diversified across public and private markets. As of March 31, 53% of its portfolio comprised unlisted assets, which have historically generated higher returns than listed assets. Marking the unlisted assets to market would provide a value uplift of S$18 billion. Temasek's three-year total shareholder return stood at 8%, while the 10-year return was 6% and the 20-year return was 9%.
Rising Cost of Capital and Capital Flow Challenges
The past year witnessed multiple global events that increased the cost of capital and had an impact on capital flows. These factors also hampered the pace of energy transition in the face of growing demand for energy security and resilience. Temasek acknowledged the effects of these challenges on its global direct investments, particularly in the technology, healthcare, and payments sectors, resulting in a reversal of gains.
Investment Strategy in a Tightening Liquidity Environment
In response to the tightening liquidity environment, Temasek adopted a cautious approach and slowed down its investment pace. It invested $23 billion in the past year while divesting $20 billion, resulting in a net investment of $3 billion. Despite this, Temasek made strategic investments in companies like Stripe, an online payments platform, and Kaseya, an IT security provider, which enabled its acquisition of Datto, a cloud-based software solutions provider. Additionally, Temasek increased its stake in Mastronardi, a Canada-based fresh produce cultivation and distribution company.
Portfolio Adjustments and Learning from Past Investments
Temasek adjusted its portfolio exposure by reducing its financial services holdings to 21% from 23% in the previous year and increasing its exposure to transportation and industrials to 23% from 22%. These sectors represent the largest portions of its investment portfolio. The company also capped its early-stage investments at 6% of its portfolio. Furthermore, Temasek learned from its investment in the bankrupt cryptocurrency exchange FTX and implemented measures to address the loss, including compensation adjustments for the team responsible for the recommendation and the senior management team.
In conclusion, Temasek Holdings faced a challenging macroeconomic and geopolitical environment that impacted its shareholder return in the financial year ending on March 31. Despite the decline, Temasek outperformed global stock market returns. The company adjusted its investment strategy in response to tightening liquidity and made strategic investments in various sectors. Temasek continues to actively manage and diversify its portfolio to maintain long-term sustainable growth.
Hot Take: Lessons for New Businesses from Temasek Holdings' Performance
The recent negative shareholder return of Temasek Holdings amidst a challenging macroeconomic and geopolitical environment provides valuable lessons for new businesses navigating similar circumstances. Here are key takeaways:
1. Resilience is crucial: Temasek's ability to fare relatively well compared to global stock market returns highlights the importance of resilience. New businesses must be prepared to weather uncertain and turbulent times by diversifying their portfolios and maintaining flexibility in their investment strategies.
2. Adoption of a cautious approach: Temasek's response to the tightening liquidity environment, with a slower investment pace accompanied by strategic investments, demonstrates the importance of a cautious approach. New businesses should carefully assess market conditions and adjust their strategies accordingly, making well-considered investments while closely monitoring capital flows.
3. Learning from past investments: Temasek's adjustments to its portfolio and implementation of measures to address losses from past investments, such as in the case of FTX, emphasize the need for continuous learning and risk management. New businesses should have robust systems in place for evaluating the performance of their investments, learning from mistakes, and implementing corrective measures.
4. Focus on long-term sustainability: Temasek's commitment to actively managing and diversifying its portfolio underscores the significance of long-term sustainability. New businesses should prioritize sustainable growth by balancing short-term gains with a focus on building a solid foundation for future success.
By incorporating these lessons into their strategies, new businesses can enhance their resilience, mitigate risks, and position themselves for long-term success, even when faced with a challenging macroeconomic and geopolitical environment.
Article First Published at: https://www.cnbc.com/2023/07/11/singapore-temasek-2023-report.html