FTX AN “ABERRATION”
Addressing the “disappointing” venture into FTX, chief investment officer Rohit Sipahimalani said at the time Temasek decided on the investment, the cryptocurrency firm seemed like one with good technology, rapid growth in market share and “very regulatory-compliant” based on regulators’ checks.
Temasek’s team had also spent time doing its due diligence on FTX but “it’s impossible to always discover fraud”, Mr Sipahimalani added.
Temasek has drawn lessons from the failed investment, he said, such as enhancing its due diligence processes and the operational areas it looks at, especially for high-growth companies.
“We hope that we’d be able to avoid such situations in the future, recognising that fraud is something that is difficult to protect against completely,” said Mr Sipahimalani.
“And we do recognise that early-stage investing will have binary risks and we need to manage (those) risks,” he added.
Temasek said in May that it had cut the compensation of its senior management and the investment team involved in the failed investment. An internal review conducted by an independent team found no misconduct by the investment team in reaching their investment recommendation.
Asked by a reporter if there was a need for more radical disciplinary action, Temasek’s chief executive officer Dilhan Pillay said the cut in compensation was meted out due to the negative impact on Temasek’s reputation.
“When you have something which affects the reputation, that’s when you take action which might be a little bit more punitive because you want to remind yourself that every time you do something, the issue is not just a financial risk associated with the investment,” he added.
“It’s the reputation risks and we take our reputation very seriously … But if you say (to) take more action, I don’t think it will be warranted.”
Mr Pillay noted that Temasek “is in the business of taking risk” and it accepts “binary outcomes” when it does the underwriting for investments.
“We consider all the risks, the mitigation factors … and we make a judgment call,” he said.
“The question is, does the portfolio do well … (which is) ultimately a combination of different efforts in making those judgment calls … and as long as that’s the end goal and objective and we can hit it, then of course, it is alright. FTX was, I would say, an aberration.”
MAINTAIN CAUTIOUS INVESTMENT STANCE
Temasek ended the financial year in a net cash position, which will provide it with the flexibility to take advantages of opportunities ahead, said Ms Png.
That said, the global economy remains fragile amid intensified geopolitical developments such as US-China tensions and the effects of the Ukraine war. At the same time, monetary policy remains tight globally with high interest rates as inflation remains elevated.
Temasek expects global growth to slow, with recession risks looming in key developed markets, which could be “exacerbated” by shocks such as the earlier collapses in the banking sector.
Back home, the Singapore economy will contend with slowing global growth and elevated inflation.
While China’s reopening could provide some support, the Singapore economy is geared more towards domestic demand in developed markets which could experience a recession. Rising geopolitical tensions will add to the challenge, although Singapore could stand to benefit from diversification of supply chains around the region, both in the near and medium term, it said.
“We maintain a cautious investment stance and expect to invest at a moderated pace this financial year, given the challenging macroeconomic environment,” said Temasek’s chief investment officer Rohit Sipahimalani.
Still, it is ready to step up investments in a market correction on the back of a “strong” liquidity position.
“Amidst an increasingly complex and volatile backdrop, we will stay focused on investing into opportunities that align with our long term structural trends, so as to build a resilient and forward looking portfolio, as part of our T2030 strategy,” said Mr Sipahimalani.
A key pillar of this 2030 strategy is to build a resilient and forward-looking portfolio, which has two components.
The first is a “resilient” component accounting for around 60 to 70 per cent of the portfolio. This comprises Temasek’s core portfolio companies and asset management business, which are “long-term investments with stable and sustainable returns”, said Mr Pillay.
The other 30 to 40 per cent of the portfolio will be a “more dynamic” one that comprises direct investments in various focus sectors, as well as early-stage unlisted companies.
“Our focus for portfolio construction for this decade is to build a portfolio that can withstand exogenous shocks and perform through market cycles, both up and down,” Mr Pillay said.
