Singapore’s Temasek reports worst returns in 7 years

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Singaporean state-owned investor Temasek Holdings has reported its worst returns since 2016 and warned it has slowed investment amid recession risks, higher interest rates and geopolitical tensions.

Temasek, one of the biggest and most active investors globally, said the net value of its portfolio had shrunk to S$382bn (US$285bn) in the financial year to March, as public and private equity capital markets fell and the technology sector was hit particularly hard. That compared with it being worth a record $403bn in 2022. A S$7bn loss was driven by mark-to-market accounting.

The Asian investor, which has two-thirds of its portfolio in the region and has backed some of the world’s biggest start-ups from Jack Ma’s Ant Group in China to San Francisco and Dublin-based payments processing group Stripe, reported a 5.07 per cent drop in total shareholder returns. This compared with a 5.8 per cent increase the previous year and was far below the 24.5 per cent increase in 2021. The group slowed its investment pace for the period, calling it “the most challenging year for markets over the last decade”.

The results underline the struggle of global investors to adapt to a new era of higher interest rates. Temasek’s cost of capital rose from 7 per cent to 9 per cent. Its total returns over a 10-year and 20-year period were 6 per cent and 9 per cent respectively.

The drop in returns was the poorest annual performance since 2016. Investment returns from Temasek and sovereign wealth fund GIC, as well as the Monetary Authority of Singapore, the central bank, are the biggest contributors to Singapore’s budget.

“The global economy is still quite fragile. Geopolitical tensions are high, showing no signs of easing. Inflation is elevated in most developed markets . . . we do believe that to get inflation under control, we probably will need to see a recession,” said chief investment officer Rohit Sipahimalani.

Temasek, whose unlisted holdings have grown substantially over the past decade to more than 50 per cent of its portfolio, had some high-profile setbacks over the year. It was forced to write down its $275mn investment in the collapsed crypto exchange FTX. Chief executive Dilhan Pillay acknowledged the high reputational damage the investment had caused but described it as an “aberration”.

Sipahimalani said Temasek was moderating the pace of its investments and applying a “geopolitical lens” to its deals. “We won’t invest in areas that are in the crosshairs of US-China tensions. We’ll prefer to invest in companies that have access to large domestic markets.”

Management said it still saw opportunities in China over the long term in sectors linked to domestic consumption and electric vehicles, but its growth outlook was uncertain. “We expect that [government] stimulus will be much lower and much more modest than what we’ve historically seen,” Sipahimalani said.

The proportion of Temasek’s portfolio allocated to China has remained flat over the past decade. It made up 23 per cent of the portfolio in 2013 compared to 22 per cent in 2023, whereas the Americas has gone from 10 per cent to 21 per cent. Its largest exposure, at 28 per cent, is to Singapore.

Temasek said it would look to boost investments in India and south-east Asia. It sees opportunities there owing to supply chain diversification away from China — dubbed China+1 — and the digital economy.