Temasek portfolio value hits new high at $313b but one-year shareholder return drops to 1.49%

Temasek's net portfolio was valued at $313 billion for the financial year ending March 31. ST PHOTO: TIMOTHY DAVID

SINGAPORE - Investment company Temasek Holdings has chalked up another record-breaking year in the face of an increasingly challenging global economy but it remains cautious about the year ahead.

Temasek's net portfolio was valued at $313 billion for the financial year ending March 31, up from $308 billion in the same period a year earlier, although its one-year shareholder return has taken a dip, its annual review noted on Tuesday (July 9).

The one-year return for shareholders came in at 1.49 per cent, down from 12.19 per cent in the previous financial year.

This was below its risk-adjusted cost of capital of 7 per cent, which is the firm's hurdle rate, an internal benchmark used to make investment decisions. The 10-year total shareholder return came in higher at 9 per cent, above the corresponding hurdle rate of 8 per cent.

This prompted a question at a briefing on the review on whether Temasek had underperformed.

Temasek International chief executive Dilhan Pillay Sandrasegara responded by noting that shareholders look to the company for sustainable returns over a long period.

He noted that it has been recalibrating the portfolio over the past decade to make it more resilient

The last time one-year returns took a sizeable dip was in the 2016 financial year when the portfolio value contracted 9.02 per cent to $242 billion.

Ms Png Chin Yee, senior managing director for the portfolio strategy and risk group, told the briefing: "While the increasingly challenging global environment may dampen business confidence and investment, we expect policymakers to be primed for dovish policies that could cushion any substantive pressure on growth.

"If growth continues to be weak, the low interest rate environment is likely to persist into the foreseeable future. This could lower returns expectations for the longer term."

Temasek pointed to the volatile nature of share markets over the past 18 months and noted that concerns remain around escalating trade tensions, which may further slow global growth.

It also cited issues such as the risk of a late-cycle recession in the United States, Brexit and the political fragmentation weighing on Europe.

While the outlook in China may come under more pressure from a prolonged stand-off with the US, Temasek said it is still optimistic on the country's medium-term trajectory.

The company remains anchored in Asia with 66 per cent exposure by underlying assets while it has been growing its exposure in Europe and North America in line with emerging opportunities.

The two regions now form a quarter of its underlying portfolio exposure, behind Singapore and China, which make up 26 per cent each.

The US accounted for the largest share of new investments over the latest financial year, followed by Europe and China.

In spite of these exposures, Ms Png told the briefing that a lot of Temasek's investments in both the US and China are geared towards domestic consumption in areas such as the financial sector, which are relatively insulated. This strategy will continue, she added.

While activity in Singapore is moderating in tandem with slowing global growth amid trade tensions, "the potential of increased trade and investment into the growing Asean region could favour Singapore in the long term", said Temasek.

It outlined a series of divestments over the year, including stakes in American biotech firm Gilead Sciences and Brazilian recycling company Klabin.

But it continues to maintain "significant holdings" in Chinese multinational Alibaba, US Internet service providers CenturyLink and British-based IHS Markit.

Mr Sandrasegara said Temasek's stakes in unlisted companies "have generally performed well and provided us with better returns than listed ones since 2002".

Its investments in unlisted assets is at 42 per cent - up from 33 per cent in the 2015 financial year - with plans to expand this share.

Overall, financial services remain the largest slice of its portfolio by sector at 25 per cent, and it continues to focus on non-bank fintech and payments platforms for new investments, such as Ant Financial in China and Global Payments. Technology, media and telecommunications remain a key focus as well.

Temasek added that it is looking into sustainable solutions and has invested in companies focused on ageing-related diseases, with increasing longevity presenting both challenges and opportunities.

It noted that six structural trends also shape its investment - longer lifespans; rising affluence; sustainable living; sharing economies; smarter systems; and a more connected world.

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