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Temasek’s portfolio value rose by more than S$7 billion ($5.5 billion) to S$193 billion during its last financial year, according to the Singapore state-owned investment arm’s latest review. Net profit more than doubled to S$13 billion, equal to its earnings in 2006, but still below the 2008 peak of S$18 billion.
However, Temasek’s portfolio return for the year fell short of its internal risk-adjusted hurdle by S$8.8 billion amid tough conditions in the global economy, according to the report, which paints a fairly gloomy picture of the world under the slightly bleak title: Building for tomorrow. Today, it seems, is a write-off.
“While Asia rebounded swiftly in 2010, the USA and European economies continued to face uncertainties,” said S Dhanabalan, chairman of Temasek Holdings, in the report. “Rising debt burdens, inflation risks and political upheaval in the Middle East tested the resilience of the global economic recovery. Against this backdrop, Temasek continued its steady investment and divestment pace, ending the year with a net cash position, in anticipation of opportunities ahead.”
Temasek has been shifting its portfolio towards Asia since 2002, which has helped it to recover quickly from a deep drawdown in 2008, when the portfolio sank to S$130 billion. It rebounded sharply last year to S$186 billion, roughly the same level it had been in 2007.
Asia made up more than three-quarters of Temasek’s underlying portfolio exposure during the year, which includes Singapore at 32%. Investments in Latin America and the non-Asia growth regions grew to 3%, while North America, Europe, Australia and New Zealand were a steady 20%.
That exposure reflects S$13 billion of investments and S$9 billion of divestments that Temasek made during the year. China remained the biggest investment destination thanks to a further S$2 billion stake in China Construction Bank. More recently, in May, it also invested in Shanghai Pharmaceuticals, though on Wednesday this week it announced that it had sold down its investments in Bank of China and China Construction Bank by $3.6 billion.
Temasek also continued its shift towards energy and resources during the year, with three big oil-industry investments in Brazil and the US. In Singapore, it was a cornerstone investor in the IPO of Hutchison Port Holdings Trust, the first container-port business trust listed on the Singapore Exchange.
Other key divestments during the year included Fraser and Neave, Hana Financial Group and Fortescue Metals Group.
The one-year total shareholder return was 4.6%, which is way down on its 17% average since its inception in 1974 — but exactly equal to the increase of the Straits Times index during the year. Five-year and 10-year compounded shareholder returns were 7% and 9% respectively, while the 20-year return remained largely unaffected at 15%.
During the past two years, Temasek has been busy building out the long end of its maturity curve, including a groundbreaking 40-year Singapore dollar bond in late 2010. In February this year it also established a $5 billion euro-commercial paper programme to cover the short end of its debt maturity curve.
The report’s title speaks of building for tomorrow, and Dhanabalan ends his letter to shareholders with some views on that. “Longer term, we remain bullish on Asia, despite medium-term inflationary and other pressures in various parts of the world,” he said. “In the decade ahead, we expect our four investment themes to serve us well: transforming economies, growing middle-income populations, deepening comparative advantages [and] emerging champions.”
In particular, the chairman noted that mid-sized cities in growing markets are projected to deliver almost 40% of global growth by 2025 and that Latin American growth will be bolstered by the demand for commodities and other natural resources.
