Can Temasek do as well for millennials as it did for their parents?
Temasek Holdings on Tuesday announced a 13 per cent one-year return. But last year’s stellar performance merely pushes up the state investment firm’s 10-year return to 4 per cent in Singapore-dollar terms. The 20-year return is a more respectable 6 per cent. Photo: Reuters
For Singapore’s state investment firm, one swallow does not a summer make.
“We are a generational investor,” says the latest annual report of Temasek Holdings, “investing for generations to come.”
By that yardstick, the firm’s numbers released on Tuesday are a mixed bag. A swallow of a 13 per cent one-year return is chirping cheerily — but nobody can quite claim it is summer yet.
That is because last year’s stellar performance merely pushes up Temasek’s 10-year return to 4 per cent in Singapore-dollar terms. The 20-year return is a more respectable 6 per cent.
Taking an even longer view, the firm has been a remarkable wealth creator at least for one particular generation of Singaporeans.
Take a 17-year-old in 1974, the year of the state investor’s founding. Investing S$10,000 on this person’s behalf, Temasek has generated S$4 million. This individual is unlikely to say, “I wish you’d given me the S$10,000, instead of making S$4 million for your shareholder — the Finance Ministry.”
There still are Singaporeans who complain about how little interest the Government pays them on provident funds. Temasek does not manage any of that money, but try telling that to former professionals now driving a taxi. Overall, though, there is popular appreciation (at least among the older generation) of the cornucopia of corporate wealth — S$275 billion at last count — that it commands at home and overseas.
Temasek, then, is Singapore’s answer to Hong Kong’s Mr Li Ka-shing. Except that Mr Li is all about serendipitous risk-taking, while Temasek was lovingly crafted by technocrats, and endowed with stakes in state-owned firms such as Singapore Airlines, DBS Group and the Singapore Zoo.
To that core local portfolio, it has in recent years added stakes in everything from banks (Standard Chartered, China Construction Bank, Industrial & Commercial Bank of China) to e-commerce (Alibaba Group) and retail (A S Watson Holdings Ltd). But can this designer baby create wealth for millennial Singaporeans just as well as it did for their parents’ generation?
GIC, Singapore’s official sovereign wealth fund, this week disclosed its own 20-year return at 3.7 per cent. This is a real return, though, in excess of the developed-country inflation rate that it is expected to beat. Stripping out Singapore’s 1.6 per cent average inflation rate for the past 20 years from Temasek’s 6 per cent return gives a figure of 4.4 per cent, not very different from GIC’s real performance. And the latter, because it manages an unspecified chunk of Singapore’s foreign-exchange reserves, takes less risk.
Given the possibility that global interest rates will remain low for another decade, Temasek may need to tweak its strategy to convince millennial Singaporeans of its utility. That is because 6 per cent returns for the next 43 years would make a S$10,000 kitty grow to just S$122,000 — that is nowhere near S$4 million.
Mr Michael Buchanan, the firm’s head of strategy, told Bloomberg Television that Temasek is planning to buy more unlisted assets. But it should perhaps be supplemented by a pruning of the firm’s 29 per cent exposure to Singapore. Most of the listed stocks it owns in the city-state are now for ageing coupon collectors; they can promise dividends, not growth.
Keeping only a few companies with steady and growing cash flows in the stable and using that firepower to scout for chunky deals in private markets is the way to go.
Dividend income from portfolio companies is 19 times Temasek’s interest expense, up from 13 times in 2013 — clearly the firm has room to load up on leverage.
Maybe repurposing Temasek as Singapore’s SoftBank Group would not be a bad idea. Mr Li Ka-shing, also known as Superman, may be retiring when he turns 90 next year, but SoftBank president Masayoshi Son is having so much fun he let a youthful successor go last year so he could invest some more. That is something millennials relate to: Having a good time while getting stuff done.
ABOUT THE AUTHOR:
Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services.
