What we learnt from the latest Temasek Review

What happened?

Once a year, we get an update from Temasek on its portfolio performance. 

Temasek’s investment philosophy is to generate risk-adjusted returns over the long term. 

However, this annual event provides us with a glimpse of its investment decisions made over the past year, and what investment opportunities it sees in the market today. 

Let’s take a look at our key takeaways from Temasek Review 2022. 

5 key takeaways from Temasek Review 2022

#1 – 1-year total shareholder return of 5.8%

Temasek’s net portfolio value rose to S$403 billion as at end-March 2022, an increase of S$22 billion compared to its portfolio value of S$381 billion as at end-March 2021. 

This marks the first time that Temasek’s net portfolio value has exceeded S$400 billion.

The 1-year total shareholder return (TSR) reached 5.8%, lower than the 24.5% reported in the previous year.

Looking at the longer term, the 20-year TSR stood at 8%, while the 10-year TSR was at 7%.

#2 – Private investments make up the bulk of its portfolio

What really caught our eye, was that unlisted assets now represent 52% of Temasek portfolio, exceeding listed assets for the first time.

Unlisted assets are now valued at S$210 billion, close to four times the S$53 billion a decade ago. 

Part of the increase is driven by the higher return of 16.2% generated by unlisted assets in the past 20 years, surpassing the 6.7% return for listed assets. 

Wondering what are some of these private assets?

This would include Singapore companies such as Mapletree, PSA International and Singapore Power Ltd, which represent a third of its unlisted assets.

Temasek’s investments into asset management businesses, including Vertex and private equity funds, make up another 40% of its unlisted assets. 

Could the high returns generated from its unlisted assets be due to the fall in public equity valuation not being reflected in private market valuation?

Here, Temasek noted that the value of its unlisted portfolio value would rise another 10 per cent if it were marked to market.

#3 – Singapore fights back to be top contributor

Singapore investments represent 27% of its entire portfolio as at March-2022. Interestingly, this is the first time in several years that Singapore is the market where Temasek has the most significant exposure to. 

Part of the reason driving the increase is due to Temasek’s participation in Singapore Airlines S$6.2 billion mandatory convertible bond issue and Sembcorp Marine’s S$1.5 billion rights issue last year. 

The other key reason is the Singapore equity market has performed better than other markets, especially China, in the past year. 

To see this, we can take a look at DBS’ share price. DBS was trading at S$36 per share back in March, close to its all-time high.

#4 – China remains an important market 

China now only represents 22% of Temasek’s portfolio, continuing a decline from 27% in 2021 and 29% in 2020.

With the Chinese market facing a sharp correction in the past year, the lower contribution from Chinese investments should not come as a surprise. 

However, Temasek remains unfazed by the weakness in the Chinese markets. 

Rohit Sipahimalani, Temasek’s chief investment officer, said that China remains an important market for Temasek and they were a net investor in China last year. 

He also noted that China was the best performing market for Temasek in the last decade despite the weakness in the past year. 

Here, there is reason to be more optimistic. Sipahimalani noted in a Bloomberg interview that “while the second quarter was very bad, that was probably the worst and we probably have upside from here in terms of growth”

#5 – Focused on sustainability 

Temasek has set a target to reduce the net carbon emissions attributable to its portfolio to half the 2010 levels by 2030, and to reach net zero portfolio emissions by 2050. 

This would mean bringing down its carbon emissions to 11 million tCO2e in 2031 from 22 million tCO2e in 2011. 

It managed to make some progress in the past year, where carbon emissions was reduced to 26 million tCO2e from 30 million tCO2e in 2021. 

To help Temasek achieve its target, it will be increasing its internal carbon price from US$42 per tonne of carbon dioxide to US$50 this year to inform its investment decisions. There are also plans to raise this further to US$100 per tonne by the end of this decade.

The internal carbon price is a assumed cost for carbon emissions, and allows Temasek to evaluate the profitability of an investment after taking into consideration the impact of any future external carbon pricing.

Temasek will also be looking to invest in companies focused on climate change, enabling carbon-negative technologies as well as encouraging its portfolio companies to continue their work in decarbonization. 

Why should we care?

Temasek’s investments affect us through its Net Investment Return Contribution (NIRC) to the government budget.

Under the NIRC framework, the government can spend up to half of the expected long-term investment returns generated by Temasek, GIC and MAS.

Since 2016, the NIRC has been the largest contributor to government revenue, surpassing corporate and personal income tax. 

So how will Temasek be investing with the uncertain macroeconomic situation?

Here, it might be worth noting that Temasek is adopting a cautious outlook and expects more market declines. 

“Taking into account the reasonable likelihood of a recession in developed markets over the next year, we maintain a cautious investment stance while staying focused on constructing a resilient portfolio underpinned by the structural trends we have identified.” 

- Temasek Chief Investment Officer Rohit Sipahimalani.