Mar 11, 2014

    Temasek's pivot to private investment

    SINGAPORE'S Temasek Holdings is shedding the skin of a sprawling sovereign investment house.

    It is cutting stakes in big publicly listed companies - as it puts more money into growing private companies and private equity firms - in search of better returns.

    Under the guiding hand of chief executive Ho Ching, the US$170 billion (S$215 billion) state investor is morphing into a leaner form.

    Temasek is already showing that it will shed more stakes and be more selective in providing money to large, listed global companies that come knocking in their hour of need, as they did before and after the 2008 financial crisis.

    Singapore's investment company has been seeking to sell a stake in Thai telecoms operator Shin Corp worth about US$3.1 billion by market value, as reported by Reuters last month, and last week was arranging the sale of a stake in Seoul Semiconductor.

    "Now they're allocating capital in smaller chunks to these publicly listed firms, so that they are no longer a significant stakeholder in the company," said Mr Melvyn Teo, a professor of finance at Singapore Management University.

    Temasek has also increased investments in unlisted companies, such as the US$500 million stake it bought in financial data provider Markit Group last year. Holdings of this kind accounted for 27 per cent of its portfolio by the end of March last year, up from 22 per cent at end-March 2011.

    Mr Jeffrey Fang, a Temasek spokesman, said: "As an investor and owner, Temasek has full flexibility to deploy our capital across a range of company structures, geographies and sectors."

    The imperative for the changing times at Temasek is straightforward: improve investment returns to meet management targets at the ambitious sovereign investor.

    It posted a total shareholder return of 9 per cent annualised over the last three years in US dollar terms up to last March. That outpaced the 6.24 per cent rise in the MSCI AC Asia ex-Japan Total Return Index over the same period, according to Thomson Reuters data.

    But Temasek's own key metric - gains after the cost of capital - fell below its benchmark in two of the last three financial years. The benchmark is between 8 and 9 per cent, its annual report showed.

    Temasek does not break down returns from its private equity assets, which include firms run by its former officials. It funded Singapore-based Pavilion Capital, headed by former chief investment officer Tow Heng Tan, that invests in North Asia, and the firm also co-manages some investments with Temasek, a person with knowledge of the matter said.

    Hong Kong-based RRJ Capital, run by ex-Goldman Sachs executive Richard Ong and former Temasek executive Charles Ong, is another firm in which Temasek has invested. It also funded Seatown, a diversified Singapore-based investment manager that is headed by a senior Temasek executive, Mr Jimmy Phoon.

    The investment approach now coming to fruition is a far cry from the multi-billion-dollar deals Temasek embarked on prior to 2008, garnering significant stakes in leading companies across Asia, Europe and the United States.

    "Temasek is carefully staying away from 'big-bang' deals, which is a deviation from the past," said a person who presents investment ideas to it. "There is no desire to take substantial positions or controlling stakes in companies any more."