Temasek Holdings

Yes dear investor, there is a tooth fairy

PUBLISHED : Tuesday, 17 July, 2012, 12:00am
UPDATED : Tuesday, 17 July, 2012, 12:00am


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Temasek Holdings

This one number stands out from all the others in the 2012 review highlights of Singapore's sovereign wealth fund. Temasek claims that it has achieved an average total shareholder return of 17 per cent since inception in 1974, or 19 per cent in US dollar terms.

In response to this claim I shall now enter my own cryptic statement:


Let's first get it straight what a 17 per cent annual total return gain means. It says that net profits on Temasek's investments, taking in only market price appreciation and real capital gain plus interest and dividend income, was an average of 17 per cent of the market value of these investments across every year of the entire 38 years of this fund's existence.

Let's put it another way. If you were a private investment fund manager with this sort of record, you would have every investor in the world getting down on his knees to you and bowing every time you showed your face in public. You would be venerated as a deity. The world would be at your doorstep asking you to manage its money.

Take, for instance, that return figure of 19 per cent in US dollars. It implies that a US$100 investment on 1974 would be worth US$74,000 now. Yes, some people have done it in lotteries, I repeat, in lotteries. The figure implies that US$360 million invested in 1974 would be worth the entire gross domestic product of Singapore today.

So let's examine things a little more closely. It was only 10 years ago that Temasek started making investments outside of Singapore and by far the bulk of its portfolio is still in Singapore. We shall thus compare its 20-year record with the performance of the Singapore stock market. I have made this a 20-year comparison as I cannot immediately lay my hands on index data back to 1974.

The chart shows you the result. Temasek claims a 15 per cent total shareholder return over the past 20 years. Assuming we started with S$100 in 1992, the Temasek gain would now stand at about $1,600. The Singapore market gives you only S$260.

Of course, you can say that Temasek, being government, had its choice of the juiciest plums on the Singapore market and that is why it outperformed.

It seems, however, to have picked the overripe ones. Going by a piece of recent research from Christopher Balding of the HSBC Business School in Shenzhen, the average annualised earnings per share growth of Temasek's largest holding, Singapore Telecom, was -2 per cent between 1990 and 2010. Another great sluggard was Singapore Airlines with -1 per cent. Temasek owns 56 per cent of that one.

And then you get that byword for loss, Chartered Semiconductor, Singapore's foray into the wafer fab business. Temasek finally rid itself of this deadweight but its loss in chasing yesterday's technologies tomorrow was likely in the billions.

We therefore turn to the foreign forays, and one of the first names that comes up here is Shin Corporation, which was affiliated with Thai prime minister Thaksin Shinawatra, who then lost his job, to Temasek's embarrassment.

Also timed injudiciously were investments in Merrill Lynch and Barclays Bank. The timing of the exits from these acquisitions was equally injudicious. I cannot quantify the losses, but informed opinion generally agrees the figure ran into the billions.

And if Temasek's touted total shareholder return is much, much higher than the overall Singapore market's, it exceeds that of foreign markets by an even wider margin. If it's a stretch to get to 17 per cent in Singapore investments since 1974, we are looking at new properties of the elastic band to see it in markets abroad.

So let's just make it simple. I simply don't believe it and I can't imagine that any investment professional does. Prove it, fellas.