Temasek: Call for more transparency

May 26, 2009

Call for more transparency

By Goh Chin Lian
		Mr Singh (left) wants a review of how the country's reserves are managed, while Mr Zaqy believes Singaporeans deserve more accountability on how they are invested.

View more photos

THE conduct and investment practices of Temasek Holdings and the Government of Singapore Investment Corporation (GIC) came under scrutiny on Monday - and they were found wanting.

The need to be more transparent in their investments for greater public scrutiny and for a review of the way they manage Singapore's reserves were issues raised by three MPs.

First to rise was Mr Michael Palmer (Pasir Ris-Punggol GRC), who criticised Temasek for keeping mum initially on the details of the sale of its entire stake in Bank of America.

News of the sale broke on May 15. Its statement explaining the sale was issued last Thursday - six days later.

Despite the statement, Mr Palmer felt there were questions still left unanswered, such as those relating to the timing of the sale and the actual sale price.

Mr Zaqy Mohamad (Hong Kah GRC) believes Singaporeans deserve more accountability on how their money is being invested. He also suggested giving people more information on the bonuses and performance of staff at Temasek and GIC.

'We ask the same of our professional investment fund managers and commercial banks. Why not those who manage our reserves?' he said during the House debate on the President's Address.

Mr Inderjit Singh (Ang Mo Kio GRC) felt the two investment companies had departed from their original investment goals and asked for a top-level review of the management of Singapore's reserves.

The MPs' comments came in the wake of reported losses by both. GIC's portfolio shrank, in US dollar terms, by about 25 per cent from the time global markets peaked in October 2007 to the end of last year. Temasek's portfolio contracted 31 per cent, from S$185 billion to S$127 billion, between March 31 and Nov 30 last year.

The sale of its 3 per cent BoA stake could have resulted in a loss of at least US$2.3 billion (S$3.3 billion), according to analyst estimates.

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Singapore's Temasek defends costly Bank of America exit

Fri May 22, 2009 2:13am EDT

By Kevin Lim and Saeed Azhar

SINGAPORE (Reuters) - Singapore's Temasek defended its money-losing exit from Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz), saying the U.S.-centric bank did not fit its investment criteria and the risk was perceived to be greater than the expected return.

The explanation, a rarity for the state investor, came in a letter to major Singapore newspapers after the loss on BofA attracted fierce criticism from the usually muted pro-government local media, investors and independent blogs, which noted BofA shares have rallied more than 70 percent after Temasek's exit.

The losses are also expected to be discussed when Singapore's Parliament convenes next week.

Temasek, which is headed by Ho Ching, the wife of Singapore's prime minister, sold its 3 percent stake in BofA in the first quarter after converting its Merrill shares into BofA in January. Temasek has not said how much it lost in the process, but Reuters estimated the loss was more than $3 billion.

Temasek announced in February that Ho will step down and be replaced by Chip Goodyear, the former CEO of BHP Billiton (BHP.AX: Quote, Profile, Research, Stock Buzz), on October 1.

"Our investment thesis had changed from Merrill's specific businesses to the more diversified BoA linkage to the broader U.S. economy. The risk-return environment had also changed substantially," Myrna Thomas, managing director for corporate affairs, said in the letter.

Temasek's aim is to ensure that its portfolio delivers returns that are higher than the cost of capital employed on a risk-adjusted basis, Thomas said.

"We may choose to divest an investment, even at a loss, to optimize our risk or portfolio exposure, or if there are better opportunities elsewhere or later," she added.

Temasek, which like other sovereign wealth funds, plowed billions into Merrill Lynch in the early phase of the credit crisis, saw the value of its portfolio plunge 31 percent to S$127 billion between March 31 and Nov 30 last year during the severe market turmoil.

KEY QUESTION UNANSWERED

Financial investments accounted for 40 percent of its portfolio.

"The letter doesn't give the answer that everybody is asking. How much did they lose?," Leong Sze Hian, president of the Society of Financial Services Professionals, told Reuters.

The exact losses are difficult to quantify because Temasek had also offloaded about 30 million Merrill shares last year in smaller lots, reducing its exposure to the investment bank by the time BofA took over Merrill.

Conraj Raj, editor-at-large at the Today newspaper in Singapore, threw the spotlight on the sovereign wealth fund's stated strategy of taking a long-term view of its investments.

"After all, it has been drummed into us ad nauseam that both Temasek and its cousin, the Government of Singapore Investment Corporation, invest for the long term with a time horizon that could stretch for as long as 50 years," he wrote on May 18.

"Whatever happened to the sovereign wealth fund's (SWF) strategy of taking a long-term view of its investments?"

Singapore's bigger sovereign wealth fund, GIC, on the other hand said it was a long-term investor in Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz).

"It is difficult to understand why a long-term investor like Temasek was willing to stick with a dud like Australia's ABC Learning centers to the end, but did not try to exercise a little bit more patience with a U.S. government-backed entity like BofA," Png Eng Huat wrote in a letter to Straits Times forum.

"The U.S. government has stated clearly that it will not nationalize BofA even though it is technically the largest shareholder of the bank."

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Why Temasek sold its stake in BoA

May 22, 2009
REBALANCING PORTFOLIO
Why Temasek sold its stake in BoA

I REFER to recent reports and commentaries on Temasek's divestment of its Bank of America (BoA) stake. We would like to clarify some of the points raised.

Temasek invests with the objective of delivering sustainable returns over the long term. This means our investment strategy is not aimed at delivering target returns on a year-by-year basis. This is why we report our portfolio returns not just for a single year, but for various time horizons in our annual Temasek Review.

To achieve our investment objectives, we constantly review our portfolio and rebalance it from time to time. We may choose to divest an investment, even at a loss, to optimise our risk or portfolio exposures, or if there are better opportunities elsewhere or later. We may also choose to hold or increase our existing investments.

Ultimately, the aim is to ensure that our portfolio delivers returns that are higher than the cost of capital employed on a risk-adjusted basis, or what we call Wealth-Added.

Our investment in Merrill Lynch was made in December 2007. This was exchanged into BoA shares in January this year following BoA's completion of its September 2008 offer to buy Merrill.

Our investment thesis had changed from Merrill's specific businesses to the more diversified BoA linkage to the broader US economy. The risk-return environment had also changed substantially.

We decided to divest our BoA stake after considering all relevant factors.

This move to balance risks against opportunities is part and parcel of our discipline of investing and divesting to deliver sustainable long-term returns on our entire portfolio.

We are mindful of the risks we face as we invest. We reinforce this risk-return balance through a compensation framework which puts the institution above the individual, emphasises long term over short term, and aligns employee and shareholder interests for both the upside and downside, over the medium and long term.

While we do our best to mitigate risks, the reality is that not every one of our investments will be equally successful. We recognise that only time will tell if we have made the right decisions to deliver sustainable returns on our portfolio as a whole.

Myrna Thomas (Ms)
Managing Director,
Corporate Affairs Temasek Holdings

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Singapore's Lesson: Buy High, Sell Low

Singapore's Lesson: Buy High, Sell Low

Written by Our Correspondent
Wednesday, 20 May 2009

Aristocratic lineage isn't a qualification for financial management

Ho Ching's flawed management of the billions of public savings entrusted to her as chief executive of Temasek Holdings has continued until the last. Her successor, Chip Goodyear, formerly with BHP, moved in as CEO-designate in March and formerly takes over in October. But presumably it was Ho Ching, the wife of Prime Minister Lee Hsien Loong, who took the decision to sell out of its huge Bank of America holding, an investment originally made in Merrill Lynch which was taken over last year to save it from bankruptcy.

Now she has managed to sell out at what, at least on a six month view, looks close to the bottom of the US financial sector. The sale was completed by the end of March so presumably took place in the preceding few weeks. Since then the BoA share price has risen 66 percent.

Temasek's loss on BoA alone is estimated around US$4.6 billion, or roughly US$1,000 for every single Singaporean citizen. Big losses too were sustained on most of the rest of the financial portfolio such as Barclays of the UK and UBS of Switzerland.

Other huge losses were sustained by the even less transparent Government Investment Corporation, which invested Swiss francs 11 billion in UBS in 2007 and added to it in a rights issue in 2008. From US$60 in New York in 2007, UBS shares have slumped to US$13, having been down to US$7. Did GIC also sell UBS when Temasek was selling BoA? Or is its presence in Singapore, where it occupies the former residence of the president, too useful for bringing in business from Myanmar generals and other friends of Singapore?

The desire to get out of Wall Street's black holes was understandable but the exodus seems to have been part of the group's follow-the-crowd mentality. And one wonders if it is not going to repeat itself. Goodyear's claim to fame was increasing BHP's market capitalization from US$12 billion to US$200 billion and a quadrupling its share price in his eight years at the helm. However, most of this was luck – the biggest mineral price boom for 40 years -- plus acquisitions made at increasingly high prices. Goodyear's reputation would be very different if Rio Tinto had accepted BHP's top of the market bid made just after he left office but with his support. Instead Rio's ego maniac chief executive rejected the offer so, having saddled itself with massive debt of its own, now going cap in hand to China.

Will Goodyear push Temasek into resources because he knows about them and Singapore itself has caught the China-growth bug? For sure prices of commodities are down a lot from a year ago. But they also have long cycles.

The latest investment focus of Temasek now, according to an executive quoted by Bloomberg, is "going to be driven more and more by China's economy and consumers so might as well load up more on Chinese banks."

So Temasek is again following fashion, re-focusing on Asia at a time when Asian markets have already recovered a long way while its former western favorites are still languishing. Temasek still seems to think that Chinese banks made a good proxy for its economy and consumers. Just like Southeast Asia in the 1990s, China's economy can grow rapidly, but still leave banks with piles of bad debts flowing from government-directed lending.

For sure, developing Asia looks a better long-term bet than the west, but discovering that today is not exactly evidence of being ahead of the curve.

Quite how badly Temasek has done is hard to figure out because the data presented is scanty and unconsolidated. For example, in 2007-08 the value of its portfolio increased by 13 percent to S$185 billion but it is unsure how much of that was simply a capital injection from the government. There are also black holes like its subsidiary Astrea, which borrowed US$810 million in earlier in the decade to invest in a portfolio of private equity and buyout funds. Another fall for Wall Street fashion which will likely be reflected in pensions for Singaporeans.

Meanwhile Temasek's local portfolio has been persistently trimmed and now represents only 33 percent of assets. Of course it may make more sense to invest in faster growing countries rather than in low growth Singapore where there are few new opportunities for a company which already controls so much. Nevertheless it hard not to conclude that some of these sales, such as the December 2008 sale of PowerSeraya to Malaysia's YTL for S$3.8 billion are not partly designed to generate capital profits readily available from long-held local assets.

Ho appears to have made a career of assuming that smart people with the right degrees and loaded up with mathematical models in one hand and high sounding jargon in the other knew more than anyone else about investment. Thus during the boom years for financial services, Temasek followed the crowd, pushing the financial sector component of its portfolio up to 40 percent, most of it invested in just the high profile western outfits favored by Ho's Wharton-bred advisors..

Like the archetypal senior Singapore bureaucrat, paper qualifications seem to have counted for far more than actual experience running a business. Such businesses as these people run are mostly Singapore public sector ones shielded from the force of free competition. Even Singapore Airlines is beginning to look jaded in an era of low cost carriers pioneered by a Malaysian, Tony Fernandes and AirAsia, and the gradual breakdown of fare cartel.

If nothing else, the record of Temasek gives the lie to notion spread by Singapore's ruling clique that they are the best guardians of the people's savings. Paternalism morphed into an arrogance whose full cost to Singaporeans is for now hidden by the opaque nature of the government's accounts, and the very partial revelations provided by Temasek. Singaporeans, gather your purse-strings and, together, pull.

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Temasek's BoA divestment

Temasek's BoA divestment
Bewildering move needs to be clarified

TEMASEK'S exit from Bank of America ('Temasek sells BoA stake', last Saturday) is bewildering although some probable reasons for it were suggested by money editor Ignatius Low in a commentary on the same day, 'Temasek should clear the air'.

One reason was that Temasek did not end up with what it paid for. Its investment in Merrill Lynch ended up with BoA after the two entities merged.

It is difficult to understand why a long-term investor like Temasek was willing to stick with a dud like Australia's ABC Learning centres to the end, but did not try to exercise a little bit more patience with a US government-backed entity like BoA.

Has the board of Temasek been given an objective assessment of the financial situation in the United States?

Was it that difficult to conclude from the various news sources that BoA would not be nationalised?

Was nationalisation a push factor for the board to dump BoA?

The US government has stated clearly that it will not nationalise BoA even though it is technically the largest shareholder of the bank.

What more assurance does the board need?

I agree with Mr Low when he wrote that 'these are, after all, extraordinary times, and so extraordinary outcomes - and losses - will be expected'.

But, the untimely foray into Merrill Lynch and the ill-timed exit from BoA were not that extraordinary in nature.

The performance benchmark for Temasek and the Government of Singapore Investment Corporation has been raised to the highest level by the Government because, we were told, it had put in place extraordinary men to safeguard our reserves.

Thus far, the investment decisions regarding Merrill Lynch and BoA have been ordinary and incomprehensible.

Png Eng Huat

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Temasek's BoA divestment: Let's not fall into a tell-all disadvantage

May 20, 2009
Temasek's BoA divestment
Let's not fall into a tell-all disadvantage

IT IS refreshing that Mr Ignatius Low, in his commentary last Saturday ('Temasek should clear the air'), and Mr Denis Distant, in his letter on Monday ('Temasek must set example on transparency'), have urged for public clarity by Temasek over its sizeable divestment of Bank of America (BoA) shares.

But their call for transparency should be reasonable - rather than a tell-all stand. The transparency should be restricted to performance reports, broad asset allocation for the prior financial year, a report on performance attribution and perhaps comments on future strategies.

Granted that Mr Low's estimate of the loss realised for the BoA investment - a consequence of Temasek's investment in Merrill Lynch which was taken over by BoA - is not a trivial amount, one has to accept that it is part of a portfolio transaction.

We cannot go around pressuring our sovereign wealth funds (SWFs) to explain every single trade.

Our SWFs should be judged on their overall investment targets within the given guidelines.

Succeeding in getting our SWFs to clear the air on single transactions may offer only a false sense of comfort that public accountability and transparency have been satiated.

The undesirable consequence is to turn investment management into a spectator sport, which may have the deleterious effect of turning our SWF managers into playing it ultra safe.

Funds around the world, be they hedge funds or otherwise, are the competition for our SWFs. The competitors do not explain every single transaction to their investors and shareholders.

Let us not force our SWFs into competing with one hand tied behind their backs against equally hefty or even larger entities.

Johnny Heng

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Temasek’s divestment of BoA stake - A clear admission of an investment error

Temasek’s divestment of BoA stake - A clear admission of an investment error

“Yes, they were good long term investments with risks thoroughly assessed”

- Minister Tharman, Jan 2008 on Singapore investments in banks.

These were the words of Singapore’s Minister of Finance, slightly more than a year ago when Singapore’s SWFs made major investments in a few global financial institutions. Take note, in particular, that Minister Tharman was defending the individual investments made by the SWFs in the banks - not the portfolio performance.

A year later, everything had changed. The stock markets had declined significantly and the global financial system was in major turmoil. The stock prices of the big banks had sunk to record lows after having their balance sheets destroyed by the dislocation in credit markets. Seeing that his original argument was no longer tenable, Tharman changed his tack as the investments in the banks sunk deeper and deeper into the red. Now, instead of taking the line that the investments in the banks were good long term investments, he instead argued that Singapore’s portfolios were well diversified, and hence Singapore’s investments were fine.

‘We would be worried if global banks comprise a large proportion of the portfolios of GIC and Temasek, or for that matter, any other highly vulnerable industry globally,’ he said. ‘But these are diversified portfolios, with not a large degree of concentration risk.’

- Minister Tharman, Jan 2009, on Singapore investments in banks.

But nevermind that the markets sunk and the stock prices of financial institutions crashed. The SWFs were protected by the fact that the global banks comprised a relatively small portion of the overall portfolio. This was the official political line that was to be held by the government - and the minister’s roles were no longer to comment on individual investments, but instead just to talk about the overall portfolio performance.

MM Lee & Co. went along with it. His job, after all, is to keep the PAP afloat during times of duress. The government could no longer defend the individual investments of the SWFs, but it could defend the overall performance of their portfolios:-

“GIC and Temasek have the ability and resources to weather the ups and downs, over multiple economic and market cycles,” Lim said. “The government is confident that they will continue to deliver good long-term returns within the risk limits set.”

- Minister Lim Hwee Hua, in parliament, Feb 2009

“When we invest, we are investing for 10, 15, 20 years. You may look as if you are making a big loss today, but you have not borrowed money to invest. You will ride the storm, the company recovers, your shares go up.”

- MM Lee, Feb 2009

And while the official political line was not to comment on the individual investments, there was one man - and one man alone, who could. That would be MM Lee himself, who double hats as both Minister Mentor AND Chairman of GIC. This was the first and only admission of fault, by the only man who had the political capital to do so, by the only man with the political power to do so and yet not fear reprise.

Lee said GIC bought “too early” into global banks such as Citigroup (C.N) and UBS (UBSN.VX), which were both hammered by the financial meltdown that quickened in the second half of 2008.

“How could we have known this was the extent of the damage? You look at all the big-name banks that have gone down, misjudged the situation, ruined their careers,” he said.

“When the market fell, we went into UBS and Citi. But we went in too early. That is part of the ride.”

- MM Lee in a Reuters Interview, Mar 2009

With GIC admitting that it had made a mistake in its investments, there was only Temasek left to do the same. But it never did, choosing instead to try to wriggle out the slick and slimy way. Temasek did not release any statement to admit that its Merrill investment had been an error, unlike, for example, Warren Buffett, who admitted that his investment in Conoco Phillips was a major error. Temasek’s CEO didn’t admit that the Merrill investment had been a mistake.

Instead, they just quietly divested their BoA stake in the open market, only making a press statement thereafter. And then, Ho Ching proceed to throw smokescreens by talking about a ‘rebalancing’ of the portfolio and a ‘10-20-30-40′ strategy.

The rebalancing is a ‘re-weighing of the growth trends and the changing risks over the next decade or two, particularly for Asia’, said Ms Ho.

Ms Ho said: ‘In short, we will continue to invest like a 35-year-old with a dynamic balance for the long term. Half a century ago, one 35-year-old became the first prime minister of Singapore.

‘We invest with the appetite of a young 35-year-old for growth and risk-taking.

‘At the same time, we also share his thoughtful conservatism to plan and provide for his children’s needs for another 10 to 20 years, while he invests to build his rainy day and retirement kitty with a 30- to 50-year horizon.’

-Ms. Ho Ching in an address to Junior Pyramid, May 2009

Absolutely irrelevant, Ms Ho. Singaporeans don’t give a shit about your grand portfolio rebalancing plans. We want transparency, accountability, and an admission of fault where there has been one. And clearly, what had started as a ‘long-term’ investment is now out of the Temasek portfolio only but a year later - this is clearly an admission that your investment was a mistake.

As for the govt, notice how significantly its tack has changed. A year ago, Tharman dared to speak up for the SWFs’ individual investment decisions. Now, he only meekly says:

‘What matters to the Government is the overall performance,’ …

“it is for Temasek, not the Government, to comment on its investment moves.”

“it is the responsibility of the board and management to make individual investment decisions, whether large or small.”

- Minister Tharman, May 2009, on SWF performance

Well, Mr Shanmugaratnam, let’s just see how the long-term performance of the portfolios fare. You can be sure I’ll be revisiting this issue in 5, 10, 20 and 30yrs time. And make sure you don’t ever, ever, comment on any of the SWFs’ individual investments, ever again.

You can be sure Singaporeans will be watching.

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Temasek must set example on transparency

May 18, 2009
SALE OF BoA STAKE
Temasek must set example on transparency

I REFER to last Saturday's column, 'Temasek should clear the air', on the massive loss arising from Temasek Holdings' sale of its stake in Bank of America (BoA).

Temasek is neither a private equity fund nor a hedge fund, but it handles billions of dollars which belong to Singaporeans.

BoA's share price ranged between US$2.53 and US$14.81 during the period Jan 2 to March 31, when the sale is believed to have been made. This makes it well-nigh impossible to guess the size of the loss, except that it must be in billions of dollars.

After being told that the investments were for the long term - when the markets in the United States crashed after Temasek had invested heavily in US financial stocks - Singaporeans expect Temasek to explain the timing of the sale and the reasons for it. Do the reasons relate specifically to BoA or generally to the US stock market? Surely it cannot be due to diversifying the geographical distribution of future investments.

Temasek must give the lead and be transparent if other listed companies on the Singapore Exchange are expected to do so.

Denis Distant

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In a culture of secrecy, no courage is required

In a culture of secrecy, no courage is required

Sunday, 17 May 2009

Ravi Philemon

“A Temasek spokeswoman declined Friday to comment on the price the fund sold its shares for or the timing of the sale”, reported the Associated Press. Why should the secretive Temasek Holdings reveal such sensitive information to a wire agency when they will not reveal it to the real stakeholders in the government holding company, the citizens of Singapore?

In 2008, Temasek Holdings (which was by then managing portfolios worth $185 billion), was asked to appear before the US House of Representatives before a joint sub-committee of the House Financial Services Committee in a hearing related to foreign government investments in the United States. Temasek Holdings then declared that, “(it) has to sell assets to raise cash for new investments and doesn’t require the government to give approvals”, mainly to assuage US concerns on transparency and non-politicization of investments.

Ms. Ho Ching’s penchant for risk-taking came to the fore in July 2007 with Temasek’s roughly $6 billion investment in Barclays, taking a 2.1 percent stake in the bank. The New York Times then reported a former (unnamed) advisor to Temasek Holdings as warning that Temasek’s strategy of buying big chunks of companies exposes it to potentially deep losses if markets turn.

The warning by the unnamed former advisor now certainly looks prophetic. In March 2009, the Ministry of Finance reported that the Singapore sovereign wealth fund lost $39 billion - 31 percent of its value - in just eight months. It’s portfolio shrank from $185 billion to $127 billion between March and November last year.

Temasek seems to be on a roll with its losing streak; and what is even more appalling is its continuing secrecy in the face of these losses. A Temasek spokesman, who revealed that “we have divested our shares in the Bank of America”, failed to answer any other queries, including the price it got for divesting 188.8 million shares in the Bank of America.

A culture of secrecy

Secrecy seems to be the culture that Ms. Ho has brought with her to Temasek Holdings.

Temasek Holdings lifts its cloak of secrecy partially when it is beneficial to its cause. For example, in October 2004, to satisfy the legal requirements in issuing bonds to raise money from the public, Temasek reported its accounts to the public for the first time in its 30-year history. Where is this accountability when $6.8 billion seem to have been lost in the untimely divestment from Bank of America?

What is even more alarming is the fact that they would have probably kept quiet if not for the compulsory Form 13F filing to the U.S. Securities and Exchange Commission from Temasek indicating that the fund no longer held shares in Bank of America or Merrill Lynch as of 31 March 2009.

In taking pre-emptive measures from the negative response such news will be unleashed from the public, Ms. Ho posted on Temasek’s website that it will now cut its holdings in the so-called OECD countries to 20 percent as it expands in Asia and emerging markets from Latin America to Africa.

The question remains, even with the pre-emptive statement before the filing was made public, “even if there is a need to cut the exposure to OECD countries, why do it now, especially when you will make such huge losses?” Did not Minister Mentor Lee Kuan Yew say in February this year when explaining why Singapore was able to invest in American banks that, “When we invest, we are investing for 10, 15, 20 years. You may look as if you are making a big loss today, but you have not borrowed money to invest. You will ride the storm, the company recovers, your shares go up”?

How right was Minister Mentor when he says that the investments are “your shares”? If they indeed belong to the people of Singapore, don’t they have a right to know where, when and how the funds are invested; and even more importantly what are the profits and the losses of such investments? Why the reluctance to reveal to the real shareholders the actual price the fund sold its shares of Bank of America for or the timing of the sale?

Ms. Ho was the head honcho of Singapore Technologies before she became the CEO of Temasek Holdings. Singapore Technologies under her leadership bought Micropolis in 1996 for $55 million, despite knowing that Micropolis had a history of failures. Approximately one year later, Singapore Technologies had tired of losses generated by the disk-drive manufacturer and ended Micropolis’ operations worldwide; loosing $630 million as a result. The Chairman of Temasek Holdings had defended Ms. Ho’s fiasco in Micropolis by saying that she had the courage to cut the losses.

Ms. Ho seems to leave a trail of taking huge risks and making even larger losses, first with Singapore Technologies and now with Temasek Holdings.

You need no courage to cut the losses when the funds invested were not yours in the first place.

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“No regrets” for $6.8bn loss?

“No regrets” for $6.8bn loss?

Sometimes I wonder why Parliamentarians and political commentators even bother to debate government expenditure. To paraphrase a senior statesman, perhaps we all have “no sense of proportion”.

Temasek’s realised loss after selling its Bank of America (BoA) stake could be as high as S$6.8 billion, according to figures published by the pro-government Straits Times. That’s more than the Singapore government’s 2009 budget for healthcare, community development, social services, and manpower development combined!

And the secretive Temasek thought it could keep it hush hush when it sold its stake before the end of March. It was only discovered when a filing with the US Securities and Exchange Commission revealed that Temasek no longer held BoA or Merrill Lynch shares.

Why did Temasek divest its shares when they were at rock bottom? Did they expect BoA to go under? Surely not, given the fact that the Obama administration has shown it is prepared to bail out banks like Citibank. If they had just held on for a year or two, or even a few months, the share prices would have had no where to go but up. This is not 20-20 hindsight. It is common sense.

While I believe Singaporeans accept that in all investments there will be ups and downs, Temasek and the government cannot hide behind this flimsy excuse for realising as large a loss as this. This is a national scandal!

Where is the accountability? None whatsoever, it seems. The CEO of the company is allowed to retire gracefully, saying she has “no regrets”. So what will cause you to leave with regrets, Ms Ho Ching? A $10 billion, or a $100 billion loss of our future generations’ money?

Since Temasek is a wholly owned company of the Ministry of Finance, I don’t think they can just claim they are a private company that is accountable only internally.

The Minister of Finance must answer to Parliament and to the people for this staggering loss of Singapore’s reserves. The government needs to be reminded that the reserves belong not to them, but to the people of Singapore, and more importantly, our children and future generations.

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CNBC David Faber described Temasek sale of BOA as “one of the worst investment” for one single fund

David Faber from CNBC:

http://www.youtube.com/watch?v=9t8-HyA6wvU

“A $4.6 billion loss on a $5.9 billion dollar investment. TPG lost $2 billion really quickly on Washington Mutual, but this one guys, is right up up there, as one of the worst investment during this period for one single investment fund.”

Now, what does the Lee family think of this latest investment loss?

Ho Ching, Temasek’s CEO, wife of Prime Minister Lee and daughter-in-law of MM Lee:

“No. I think if you want to run life with regret, you will end up doing very little.” (when asked if she had any regrets about leaving Temasek, Reuters 6 February 2009, source)

Lee Kuan Yew, GIC’s Chairman, father of Prime Minister Lee and father-in-law of Ho Ching:

“When we invest, we are investing for 10, 15, 20 years. You may look as if you are making a big loss today, but you have not borrowed money to invest. You will ride the storm, the company recovers, your shares go up.” (CNA, 7 February 2009, source)

Lee Hsien Loong, Prime Minister of Singapore, husband of Ho Ching and son of MM Lee:

“Both Temasek and GIC are professional investment organizations, highly regarded around the world for their track record. Management hired all over the world. Boards are competent and experienced. They pursued sustainable returns over the long term, and avoided excessive risk-taking for short-term gains. Thus we have achieved good long term returns through ups and downs in the global economy and market cycles.” (in a speech on 21 October 2008, source)

Since we are investing for the long-term, why did Temasek sell of its stake in BOA so early and at such a low price? In less than a year, it lost 83% of its initial investment in Merill Lynch!

Is Temasek pursing “sustainable returns” over the long term by pulling out so early from BOA? Does Ho Ching still have “no regrets” over such a disastrous loss? Of course she won’t, since the money is not from her own pockets.

Does Singapore still has a future when its SWFs are bleeding our precious reserves dry with such ill-judged investments?

Imagine using the $4.6 billion dollars to help ordinary Singaporeans tide over the current economic turmoil by subsidizing medical bills, providing retrenchment benefits and paying for the education of needy students.

The government kept telling the people that we should be self-reliant and not develop a clutch mentality. It is not as if it has no means to help the less fortunate in society. It is so filthy rich that it is able to blow billion dollars away in an instance without blinking an eyelid!

In her latest speech as Temasek’s CEO, Ho Ching said:

“We must do things today with tomorrow clearly in our minds. The story of Temasek is likewise a journey, each generation doing things yesterday and today with tomorrow very clearly in our minds – to make a difference to our fellow men and women, to support and build a future where Asia and Singapore can realise their full potential for their people, and to put in place the foundation for a better tomorrow.” (read her speech here)

Forget about Asia, Madam Ho. Haven’t you caused enough trouble in Thailand? Obviously the investment decisions made by you during your tenure did not take the future into account. How else can you explain the terrible losses suffered by Temasek from the purchase of Shin Corp, ABC learning and now Merrill Lynch?

The Singapore government must account to the people immediately on the latest loss by Temasek since it is a corporate entity fully owned by the Ministry of Finance which is in turn financed completely by taxpayers’ monies.

It is a shame that the PAP pay only lip service to transparency and accountability and continue to demand us to pay them exorbitant salaries only to screw up big time, again and again.

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What A Complete Balls Up!

What A Complete Balls Up!

Investment strategy is not that difficult to grasp. You buy low, and sell high.

On 7 Feb 2009, the minister mentor Lee Kuan Yew told 1,500 of his Tanjong Pagar constituents at a Lunar New Year dinner that the Singapore government turned many of its stocks and shares into cash early last year before prices went down and invested in the American banks. Mr Lee explained: “When we invest, we are investing for 10, 15, 20 years. You may look as if you are making a big loss today, but you have not borrowed money to invest. You will ride the storm, the company recovers, your shares go up.”

A Form 13F filing to the U.S. Securities and Exchange Commission has revealed that Temasek no longer held shares in Bank of America(BofA) or Merrill Lynch as of March 31. Reuters cited a source briefed on the deal saying that the shares were sold for between US$2.53 and US$14.81 in the first quarter. Based on a Reuters calculation which assumed an average price of US$8.67, Temasek may have suffered a loss of about US$4.26 billion. The loss on the BofA shares adds to the $2 billion paper loss Temasek took when it converted Merrill shares into 189 million BofA shares. The BofA stake sale was confirmed by a Temasek spokeswoman on Friday, but she declined to reveal the average price it got for its 188.8 million shares or why or exactly when it was sold. An important question that begs asking: who has the balls to reverse Lee Kuan Yew’s long term investment strategy?

And there is the question of timing. Temasek unloaded all its shares by the end of the first quarter of this year, just before an April rally that saw BofA shares double from US$7 to US$14. Only 3 days ago, US Treasury Secretary Timothy Geithner was quoted as saying that the US Financial system has completed a big part of a painful adjustment away from its excessively leverage state, and was “starting to heal”. None of the other sovereign wealth funds that had bought into the investment banks has exited their investments. So who exactly in Temasek is trying be smarter than Geithner? As Song Seng Wun, chief executive of CIMB Research in Singapore, told Reuters: “It seems they feel the China growth story is better than the ‘green shoots’ of recovery in the US”.

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Temasek and Bank of America - Are we missing something?

Temasek and Bank of America - Are we missing something?

In December 2007 – the nascent and uncertain times prior to the eventual global credit meltdown – Temasek Holdings placed a strategic US$4.4 billion bet on troubled US investment bank Merrill Lynch. As markets continued to unravel from the subprime crisis and credit squeeze Temasek nearly doubled down with an increased stake of US$ 3.4 billion in July 2008.

In justification of this tremendous capital injection in uncertain times, and perhaps to calm nervy Singaporeans, Temasek declared “great confidence” in then Merrill Lynch CEO John Thain.

MP Lim Hwee Hua – Singapore’s minister of state for finance – announced in parliament that “Because our reserves are invested with a long-term horizon, this long-term orientation will keep us from selling in panic in a market downturn” and that “The downturns also offer opportunities for our agencies to invest in good quality assets at prices that are attractive from a long-term perspective.”

History is cruel and unforgiving as less than a month later, Lehman Brothers went bust; setting off a chain of events threatening to take down giant insurers, banks, motor companies, … etc down with it.

Having already suffered heavy loses on initial investments, optimism sprung eternal when Bank of America bought over Merril Lynch to prevent it from going bankrupt. The conversion of Merril into Bank of America shares promised some long term recovery given that Bank of America is a much bigger franchise.

Had Temasek sold its stake after the Bank of America takeover in Sep 2008, it could have gained US$1.5 billion, according to an estimate by Ilian Mihov, an economics professor at graduate business school INSEAD in Singapore. The stock price of Bank of America ranged from US$26 – US$37 per share in Sep 2008.

Perhaps Temasek believed in its mantra of having a long term investment horizon and sought to retain the Bank of America stock to earn more than what to them was a measly potential 20% return on investment.

That resolve, or foolishness, was short lived and today it was confirmed that Temasek had sold its entire stake by 31 Mar 09. Choosing instead to increase investments in emerging markets and reduce exposure to developed economies.over and over, AND over again.

Market timing is clearly not a strong suit of Madam Ho Ching. Since the end of March, when Temasek completed the sale (at an average price of US$6.73), Bank of America stock has risen 66 percent (presently it is US$11.31).

US$11.31 is not much compared to the US$37 it could have made in Sep, but its obviously much better than US$6.73.

I’m not an economist but I am well aware of the shortcomings of attempting to time markets. It is often described as a fool’s quest and I therefore can appreciate the long term investing philosophy. So why the sudden abandonment of this philosophy? We will probably never know the real reason.

Meanwhile, we continue to reward incompetence

Am I missing something?

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Big loss from Singapore bank sale

Big loss from Singapore bank sale

Temasek, the Singapore state investor, sold its stake in Bank of America in the first three months of this year for a large loss, it has announced.

The group invested in Merrill Lynch before Bank of America took it over last year and before the credit crunch took hold.

Analysts said the bank no longer offered a global financial franchise.

The state-owned investor is now focusing on investments in Latin America and Asia in particular.

"It seems they feel the China growth story is better than the 'green shoots' of recovery in the US," said Song Seng Wun at CIMB Research.

Temasek has been hit hard by falls in financial stocks.

Its investment portfolio fell by 31% between March and November last year.

Bank of America posted encouraging first quarter results with revenue increasing to $4.1bn ($2.7bn) from $1.2bn a year earlier.

However, the US bank set aside $13.4bn to cover credit losses. It has also received billions of dollars in aid from the US government.

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Transparency and Temasek: diversification, investments and a vote for Jim Rogers

Transparency and Temasek: diversification, investments and a vote for Jim Rogers

An area which I am particularly concerned about as a Singaporean citizen is transparency and accountability of certain decisions, particularly with regards to Singapore's investment strategies via Temasek and the Government Investment Corporation, or GIC. They have undeniably done a good job so far: look at Temasek's track record. It's really pretty decent, if lumpy, but as Buffett once said, I'd rather have a lumpy 15% than a smooth 12%. Especially since smooth returns are often a symptom of a Madoff-like Ponzi scheme

Despite Temasek's past brillance, I found it disturbing when their respective investments in Merrill (by Temasek), Citi and UBS (by GIC) were done extremely quickly, and at a disturbingly high price (to me, even at that time).

More disturbingly, it transpired today that Temasek had sold off its stake in Bank of America (which had acquired Merrill) in the first quarter of this year. The market timing is superbly bad: they bought at a high, and sold all the way to the bottom, and missed out on the rebound in prices from the bottom that occurred around March. They might pride themselves on their fundamental analysis, but from this it is fairly obvious that their understanding of market dynamics and market timing is sufficiently bad for this realized loss to occur, especially since they had emphasized that this was for a "long term investment". This episode reminds me of an ex-colleague who said, "a long term investment is a short term speculation gone bad", only that in this case it's both a long term investment AND a short term speculation gone horribly wrong...




If Temasek was any normal company, the shareholders might be roused by a Carl-Icahn-wannabe into an open shareholder revolt, demanding answers as to how this happened, why it happened, and how we can prevent this from happening again. This being Singapore, such calls for radical change are unlikely to be heard from the Singapore press (though to be fair, their money editor wrote a piece today asking Temasek to come clean). It is perhaps just as well that such demagogy is not typical, given that stupidity is the norm in mobs while relatively rarer in individuals. We should perhaps be more charitable: time alone will tell whether Temasek made the right or wrong choice with regards to divesting Bank of America in Q1 2009.


More at stake than just a single stake in an American bank


All the same, I do question Temasek's investment strategy and tactics, and wonder if there might be some mechanism to allow for greater checks and balances.
Prompted by the news of this recent divestment, I started looking at Temasek's website on their investments. It becomes fairly obvious that Temasek's bad call is symptomatic of a larger issue. For an investment company of that size (>US$100bn), Temasek is extremely concentrated in a single asset class (ok, maybe two asset classes, as they have an internal private equity fund as well), and lacks sufficient diversification across asset classes and across geographical regions. As a comparison, the much smaller Yale University endowment fund (US$28bn) has spread their assets across six different asset classes (excluding cash), including absolute return funds, private equity, and real assets (which is made up of real estate, oil and gas assets, and forestry).

The argument that I have heard for Temasek's concentrated portfolio is "higher risk, higher return", which sounds intuitively correct. But contrary to what people think, having more risk doesn't always translate into more return: the markets are full of occasions when there are asymmetric risk/reward situations, where sometimes risk is much larger than reward, or the reverse. That's the reason why portfolio diversification can actually increase your potential returns while reducing your risk, if done correctly.

Temasek's portfolio is diversified across different industrial sectors, but almost entirely concentrated in equities. In a longer run, an equity focus is a good idea, but there are times like Black Monday, when all equity markets become very highly correlated, which is why it is important to diversify significantly into other non-correlated asset classes, like hedge funds, private equity, venture capital etc. that are not correlated to your main market. Geographically, Temasek is focused primarily in Asia, US and Europe: Africa, Latin America and Russia are nowhere on the list, which is surprising given that the growth in these geographical regions have been significant, and the markets there have a weaker correlation than Asia, Europe and the US (which is Singapore's primary exposure). The opportunity cost of losing out on the growth in Africa, Russia and Latin America and the lost diversification benefits (from a risk perspective) cannot be overlooked. This lapse is also surprising given that Temasek's stated investment strategy of four themes overlaps with a number of excellent companies in Africa, Russia and Latin America.

Temasek might want to consider the kind of asset bucketing that was pioneered by David Swensen of Yale's endowment fund, but to go beyond the Yale model and look into managed futures and derivatives funds. If I were in Temasek's shoes, I would consider investing a few billion in joint venture funds with commodity trading advisors (CTAs, for short) that have a decent track record, as per this example that you can see from Abraham Trading, on a 50-50 equity basis. This overcomes the moral hazard of selling a call option to the CTAs (when you give them your money to invest on your behalf), but more importantly it also allows Temasek to groom a generation of traders with which to create its own diversified trading funds in the future.

It will also not be a bad idea for Temasek to explore creating a joint venture with Nassim Taleb's Black Swan investment fund, Universa Investments, to hedge part of our portfolio and to learn to properly hedge. This is especially the case, as most financial professionals have readily used the excuse of "these are unprecedented markets" to pardon their portfolio losses, whereas George Soros used the same reason to get out of retirement and make US$2.9 billion in 2007.

Greater transparency and more dialogue for Temasek's future trading strategy

To be fair, Temasek has been pretty upfront and transparent about their strategy so far. But when faced with portfolio losses of this magnitude, there needs to be some answers, and some honest dialogue in the days ahead of what should the path ahead be like. Arguably, Temasek has already taken the correct first step by having Chip Goodyear replace Ho Ching, which portends a professionalization of Temasek in the days to come.

But in addition to this, I think Temasek needs to include more professional investors on its Board of Directors (and not just company CEOs). As such, I vote to include Jim Rogers on Temasek's Board of Directors. We can maybe consider that to be Jim Roger's NS, and offer him a citizenship after that.

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Temasek lost US$4.26 billion on BOA

May 15, 2009

Temasek sells BOA stake

By Alvin Foo
		Singapore state investor Temasek Holdings has divested its entire state in Bank of America. -- ST PHOTO: TAN SUAN ANN

SINGAPORE'S state-owned investment vehicle Temasek Holdings said today that it has sold its entire stake in the Bank of America.

A Temasek spokesman said: 'We have divested our shares in Bank of America.'

The Straits Times understands the sale was done via a series of transactions in the first quarter of this year.

Temasek declined to reveal the average price it got for its 188.8 million shares, but preliminary estimates put the potential loss at a whopping US$4.26 billion.

Temasek had paid about US$5.9 billion for a 13.7 per cent stake in Merrill Lynch since December 2007, which was converted into Bank of America stock following the completion of the acquisition. This gave it a stake of some 188.8 million Bank of America shares, or about 3.8 per cent.

Reuters cited a source briefed on the deal saying that the shares were sold for between US$2.53 and US$14.81 in the first quarter.

Based on a Reuters calculation which assumed an average price of US$8.67, Temasek may have suffered a loss of about US$4.26 billion.

Temasek's net portfolio value dropped 31 per cent between March 31 and Nov 30 last year, from $185 billion to $127 billion.

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