World Economics - Insight , Analysis and Data

World Economics - Insight , Analysis and Data
Singapore’s Temasek Holdings
Friedrich Wu, Ng Kuan Khai & Gerald Giam
World Economics, March 2014

This paper examines shifts in Temasek Holding’s (Singapore’s sovereign wealth fund) investment and risk management strategies since the 2008–09 global financial crisis (GFC), as well as the risks it has faced in recent years. Our findings reveal that the shift in Temasek’s investment strategy has been made in response to a combination of the GFC, rising political and sovereign credit risks, as well as the desire to move away from playing a custodial role to Singapore’s government-linked companies (GLCs). We note that, apart from capitalising on lower global prices to expand its portfolio as well as minimising its exposure to the financial services industry immediately after the GFC, other changes have been part of a continued trajectory of a broader shift in investment strategy that commenced in the early 2000s, with a redirection of the geographical distribution of its portfolio from Singapore and OECD countries to Asia (excluding Japan). Furthermore, as a sovereign wealth fund, Temasek has had to deal with increasing political and sovereign credit risks in recent years. To mitigate these political risks, Temasek has pledged that it will cease seeking controlling interests in foreign companies, will increase the use of local partners and will consider the ‘emotional sentiments’ that its acquisitions may arouse in host countries. The elevated sovereign credit risks in the Eurozone and the United States have rendered Temasek more cautious in investing in those regions and, where it has invested, it has focused on the energy and natural resource sectors, which are relatively more insulated from sovereign credit risks.

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