Singapore Inc., Temasek and reaping rewards

All Singaporeans are shareholders in Singapore Inc. A fact which the government has a tendency to remind us particularly around election time. The reminders often come in the form of various 'Bonus Shares,' i.e. cash taken by from the taxpayer by the right hand and subsequently returned to the taxpayer with the left hand.

Recently, a university student studying Temasek emailed me some questions about the entity. (I assume the questions were prompted by my earlier letter published by the Straits Times recommending an independent board of directors modelled upon Calpers' example.) The questions started me thinking about Temasek's contribution to its shareholders, the Singaporean people.

The result was the following letter published in the Straits Times on July 16, 2010.

GOVT'S NEXT CHALLENGE

Find ways to let S'poreans reap Temasek's excess gains

I AM certain that Singaporeans want Temasek's investment performance to outperform all long-term benchmarks adopted by its management and the Government ('Temasek's assets hit record $186b'; last Friday).

However, there is the question as to how Temasek uses any excess returns. Currently, it reinvests these returns back into its investment portfolio. Hence, through Temasek's growing domestic portfolio, some of these funds find their way back into the Singapore economy. Temasek's role in fostering aspects of the domestic corporate sector is well known.

Having been constructed over many years, Temasek's investment portfolio is now mature, that is, it is self-sustaining. Therefore, the portfolio is now satisfactorily able to absorb payouts to its ultimate beneficiaries: Singaporeans.

The Government should explore alternative mechanisms to share Temasek's investment successes with the population at large.

One recommendation is to distribute a small percentage of excess returns directly to Singaporeans. For example, the Government could consider reinvesting 80 per cent of excess investment returns into Temasek's portfolio, while the remaining 20 per cent is paid out to citizens in the form of annual 'Temasek Bonus Shares'.

A high watermark may be implemented to ensure that payouts are sensible and do not eat into Temasek's long-term portfolio.

Temasek is a fiduciary tasked with generating investment returns on behalf of Singapore and Singaporeans. Thus, any excess returns over its rolling five-year benchmarks should accrue to the Singaporean population. As with any prudent portfolio, much of the returns should be ploughed back into the investment account while a limited portion may be used for current consumption.

Sovereign wealth funds like Temasek clearly have a role in managing a nation's wealth. However, in the economic context of modern Singapore, transforming their role into delivering additional concrete benefits for Singaporeans is the Government's next challenge.

Imran Ahmed

Temasek's response published on July 17 is reproduced below.

Jul 17, 2010

Sharing excess gains: Temasek replies

WE THANK Mr Imran Ahmed for his proposal yesterday ('Find ways to let S'poreans reap Temasek's excess gains').

Temasek invests for the long term, by focusing on value creation and growth. Far from managing a 'mature' portfolio, we have been actively reshaping our portfolio to increase our exposure to various growth economies in Asia and elsewhere.

As a result, excluding Singapore and Japan, our underlying exposure to Asia is nearly half of our $186 billion portfolio compared to less than one-fifth of a much smaller portfolio six years ago. Post-2002 investments constitute just over half of our portfolio today.

There are inherent investment risks. Our portfolio value fell as equity markets plunged the year before, and rebounded $56 billion as markets recovered and our continued investments paid off. Although markets are calmer, there remains a one-in-six risk of losing 14 per cent or more of our portfolio value during this financial year.

We recognise there may be some interest to co-invest with Temasek. We are exploring such possibilities, particularly for co-investors who have a long-term investment horizon and the ability to tolerate the volatility. We will share these ideas when we are ready.

As for sharing returns with the wider community, Temasek has committed more than $1 billion since inception to community, philanthropic and public good causes.

We have, since 2003, formalised our commitment to set aside a share of our returns for community contributions whenever we deliver returns above our risk-adjusted hurdles.

Our most recent contributions were three philanthropic endowments for Singaporeans totalling $170 million last year, with $70 million specifically for supporting health-care and special needs programmes in Singapore.

Myrna Thomas (Ms)
Managing Director
Corporate Affairs
Temasek Holdings

I end with a comment to the Temasek response posted by JohnKeats8008 who wrote, "To summarise, what is lost is lost, what is gained is kept to be lost later, and nothing for you."

Now there's a real cynic.

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Imran is a business and management consultant. Through his work at Deodar Advisors, Imran improves the profitability of small and medium sized businesses. He can be reached at imran@deodaradvisors.com.