CEO Dilhan pointed out that besides tighter liquidity conditions and higher inflation, the investment climate has become more complex over the past year. — Reuters
SINGAPORE: Temasek’s 5% loss in total shareholder return (TSR) for its last financial year was due to the same challenging market conditions other funds also face. The firm also has a conservative valuation methodology.
This was noted by its executive director and chief executive Dilhan Pillay Sandrasegara in an interview with The Straits Times following the release of the sovereign wealth fund’s annual review on Tuesday.
Temasek valued its unlisted investments at book value less impairment. “If we were to market it, we will be recording an S$18bil (RM62bil) value uplift,” Dilhan said.
Nevertheless, with the portfolio at S$382bil (RM1.3 trillion), TSR stood at 8% over three years and 9% over a 20-year period, which includes the 2008 global financial crisis.
Dilhan pointed out that besides tighter liquidity conditions and higher inflation, the investment climate has become more complex over the past year.
On the geopolitical front, investors have to grapple with the risk of decoupling, the emergence of protectionist policies and the high costs of energy security and energy transition.
These portend lower global growth and lower real returns, he said.
But there are still opportunities, Dilhan noted, adding that he is upbeat on India, where he drew parallels to China in 2005.
“We’ve been long-term investors in China and India, starting from the early 2000s, and have significantly grown our portfolio in each market alongside their economic development,” he said.
“We continue to see long term potential and emerging opportunities in both markets.
“We are optimistic about India’s growth trajectory due to the country’s sound fundamentals. The growing middle income population is driving changes in consumption, underpinned by widespread digitisation.
“These trends are creating new opportunities with a long runway for growth in the consumer, digital and healthcare spaces.”
Dilhan said recent regulatory developments in China have provided greater clarity for the market and tech companies alike, and reflect the Chinese government’s recognition of the significant contribution of internet companies to economic development and employment.
“With a more supportive environment and continuous domestic innovation, we see the potential for further growth of the digital economy, and the emergence of the next generation of leading tech companies,” he added.
Closer to home, South-East Asia continues to offer attractive investment opportunities driven by strong economic fundamentals, favourable demographics and secular tailwinds.
A key pillar of Temasek’s investments will be its T2030 Strategy, which at its core encompasses sustainability and ESG (environmental, social and governance) factors.
Its top sustainability goals include halving net carbon emission compared with 2010 levels and achieving net-zero carbon emissions by 2050 for its investments and portfolio companies.
A testament to Temasek’s commitments to these goals was the fact that it recently emerged at the top of the governance, sustainability and resilience scoreboard published by Global Sovereign Wealth Fund.
Chia Song Hwee, deputy CEO at Temasek International, who was also in the interview, said the fund was taking a more refined bottom-up approach to investing which transcends across markets.
“Our priority areas are digitalisation, sustainable living, future consumption and longer lifespan,” Chia said.
“These are the guiding principles today, which point to where we allocate capital.”
Investments into these areas collectively accounted for 31% of Temasek’s portfolio at end-March this year, compared with 13% in 2016.
Dilhan pointed out that trends such as sustainable living and longer lifespans were becoming increasingly critical in developed markets, where populations were rapidly ageing and replacement rates were low. This, he reckons, opens up huge investment opportunities.
Financial technology (fintech) is another area that remains of key interest to Temasek.
“Fintech is front and centre of banking today and the advancement of technology holds the promise for new players,” Chia said.
“If we do not put ourselves in a position to gain exposure to this, learn and exploit opportunities in this area, our portfolio will become irrelevant over time.”
What about artificial intelligence (AI)?
“AI has been an emerging technology for a while now. But it is still a nascent area in the business-to-business space and we need to watch this space closely to see if greater value can be extracted,” Chia said.
“Our investment in AI technology is still not large and our exposure mainly comes from funds that invest in these opportunities.”
Chia said that while Temasek was not ready to invest directly in AI applications yet, it was nevertheless plugged into opportunities via “enablers” such as semiconductor players like TSMC and Nvidia.
Beyond financial investments, he shared that Temasek’s focus in AI is more on capability building in line with its T2030 Temasek Operating System strategy.
This includes working with portfolio companies to co-develop and create value through innovative products and services enabled by AI.
“That is why we have also set up ventures such as Aicadium and Minden AI to allow us to build capabilities and benefit the ecosystem.” Chia added.
Another area where Temasek sees value is the private credit market.
“Its outlook is very good in an elevated interest rate environment,” Chia said.
“Our returns in the private credit market are even better than our equity investments. It allows better risk-reward, for the time being.”
He added that in an emerging investment climate marked by volatility, complexity, uncertainty and ambiguity, Temasek’s biggest challenge is to remain relevant.
“Folks like Dilhan and I are born with a sense of paranoia,” he quipped.
“We know that if we (at Temasek) don’t adjust to the new realities, we would face threats. We must remain agile, nimble, learn from our mistakes, do better and do good.”
“We must constantly change. This is not a very comfortable thing to do, whether for individuals or institutions. But if you do not change, you become irrelevant.” — The Straits Times/ANN
