Singapore investment firm Temasek Holdings recently released its latest annual review for the fiscal year ended 31 March 2022 (FY2022).
The firm, which invests in a mix of listed and unlisted businesses, reported that its portfolio value rose to S$403 billion, up 5.8% from S$381 billion a year ago.
Temasek’s geographic mix has also shifted towards Singapore in recent years, with the island state taking up the lion’s share of its portfolio at 27% for FY2022, up from 24% in FY2021.
In terms of sector, both financial services and transportation & industrials make up close to half of the portfolio’s total value at 45%, up from 43% last year.
Chairman Lim Boon Heng acknowledged that the world today is very complex, but that there are “tremendous opportunities” for everyone to work together to overcome the challenges we face.
CEO Dilhan Pillay sees Temasek Holdings as a purpose-driven organisation that will devote resources to nurture people and prepare them for the future.
Here are five highlights from the company’s Annual Review that you should know about.
Investments at a decade-high
Temasek made S$61 billion worth of investments in FY2022, the highest in a decade.
This was balanced by S$37 billion of divestments as the company engages in active capital recycling to maximise value.
The capital was deployed to reposition Temasek’s portfolio for growth in a post-pandemic world, while also locking in gains from divestments based on the company’s assessment of intrinsic value.
In the last 10 years, Temasek has made a total of S$315 billion and S$234 billion in investments and divestments, respectively.
Impressive long-term returns
Temasek’s one-year shareholder return has fallen sharply to 5.8% for FY2022, down from FY2021’s 24.5%, due to global market volatility and steep drops in the value of technology growth stocks.
However, total shareholder return (TSR) since inception in 1974 stood at an annualised 14% compounded over 48 years, an impressive result by most measures for a portfolio its size.
The 10-year and 20-year TSRs stood at 7% and 8% compounded, respectively.
Over the last 10 years, Temasek has seen just two years of negative returns, at -2% in FY2020 and -9% in FY2016.
The portfolio’s steady returns over long periods attest to its successful strategy of investing for the long-term in a mix of strong blue-chip companies such as Singapore Technologies Engineering Ltd (SGX: S63) and Keppel Corporation Limited (SGX: BN4), as well as cash-generating unlisted assets.
A four-fold increase in unlisted assets
The value of unlisted companies within Temasek’s portfolio has increased in FY2022 to take up more than half of the portfolio.
In the past decade, this segment of the portfolio has generated returns over 10% per annum either through IPOs or trade sales, as well as from the performance of the underlying business.
Over the same period, the value of these unlisted assets has risen nearly four-fold from S$53 billion to S$210 billion.
Some examples of these investments include Mapletree Investments Pte Ltd, the Port of Singapore Authority (PSA), and the Singapore Power (SP) Group.
Tapping on structural trends
Temasek’s investment philosophy has been guided by four long-term structural trends since 2016.
They are digitisation, sustainable living, the future of consumption, and longer lifespans.
Over the years, the company has aligned its portfolio with these trends to enjoy long-term tailwinds.
Close to one-third of Temasek’s portfolio is now exposed to these trends, up from just 13% back in 2016.
Strategic partnerships is another method used by Temasek to catalyse growth and scale up its presence.
The aim is to grow the firm’s global footprint in sectors such as energy, food, mobility, manufacturing, and the built environment.
Some notable collaborations include Decarbonization Partners, a tie-up with BlackRock (NYSE: BLK) to accelerate efforts to achieve net-zero emissions.
Temasek has also partnered with DBS Group (SGX: D05), Standard Chartered Bank (LON: STAN) and Singapore Exchange Limited (SGX: S68) to set up Climate Impact X, a global exchange for high-quality carbon credits.
To enable the growth of sustainable foods, Temasek has set up the Asia Sustainable Foods Platform to support food technology companies from incubation to commercialisation.
Get Smart: Heightened risks of stagflation
While the growth of its portfolio is encouraging, Temasek has also flagged the risk of stagflation as the global economy remains fragile.
Stagflation, a combination of the words “stagnation” and “inflation”, also raises the risk of a recession.
The company will slow its investment activities for now as it waits for more clarity but remains interested in new-economy sectors such as new consumption patterns, sustainability, and innovation.
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Disclaimer: Royston Yang owns shares of DBS Group and Singapore Exchange Limited.