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Temasek, one of Singapore’s sovereign wealth vehicles, today announced unaudited figures for its last financial year, showing a 2.3% decline in total shareholder return.

In the circumstances, that’s really not bad.

The Temasek financial year ends on March 31 – which, you’ll recall, was right in the teeth of the market declines as Covid escalated from being an Asian to a truly global concern. The World Health Organization declared Covid-19 a pandemic on March 11; the market bottom, for now at least, came 12 days later, and the Temasek year-end eight days after that.

The MSCI World Index was down 5.8% in the year to March 31, the MSCI AC Asia ex-Japan 9% and the MSCI Singapore Index 18.3%.

Temasek’s success in ducking most of this loss, and maintaining a compound total shareholder return of 7.5% annualized over the last 16 years (or 14% a year since foundation in 1974), shows the nimbleness of a unique sovereign institution.

We’ve remarked before that Temasek does not look like most other sovereign wealth funds. The vehicle in Singapore with the classic sovereign wealth appearance – balanced portfolio across multiple asset classes, mandate to invest and diversify the national reserves, target to beat inflation – is GIC. Temasek invests mainly in equities, with a mandate to earn a spread over its cost of capital in the long term.

Temasek’s success in ducking most of this loss… shows the nimbleness of a unique sovereign institution 

There are years when that results in some relatively wild gyrations, like when China has a bad year, but it also brings a certain agility. 

Today’s announcement is not the full report on portfolio performance – that will come in September, two months later than usual because several portfolio companies have delayed reporting their own performance – but we do have some clues as to how Temasek has measured its portfolio, worth S$306 billion ($220 billion) on March 31.

For a start, we know that at that point Temasek had a net cash position and a strong balance sheet. It is an active manager, routinely buying and selling tens of billions of dollars of holdings in any given financial year, and it is likely it was quick to pull the plug on some of its holdings as the decline kicked in and to move that money into cash.

We also know that Temasek has made biotech investment a long-standing priority that may well have insulated it through the market ructions around Covid-19. 

In the previous reported period – the year to March 2019 – life sciences and agribusinesses made up 7% of the portfolio, including positions in Singapore biotech firm Tychan (which is developing treatments for Covid-19), British biotech Orchard Therapeutics, and Irish pharmaceutical delivery company Aerogen. 

In June, it invested $250 million in the German Nasdaq-listed company BioNTech through a private placement. Temasek was also an early investor in Gilead, although it divested at least some of those holdings last year.

Outperforming

A press conference will have to wait for the report in September, but chief executive Dilhan Pillay did provide pre-recorded remarks. He said of net cash: “This positions us well to ride through the tough times, to position our companies for future growth, and in other opportunities that may present themselves.”

The shareholder return number will probably have been bolstered by Temasek’s unlisted investments, which are recorded at book value. Even so, there is a track record now of outperforming during crisis: it did so during the Sars crisis too.

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Dilhan Pillay, Temasek 

“At Temasek, we invest for the long term,” Pillay said. “We accept that being an investor in equities means higher year-to-year volatility and the risk of negative returns. This is balanced by an expectation of higher returns over the long term.

“We don’t manage our portfolio to short-term changes in market value, because we’re not trading our assets over short horizons.

“Instead, we focus on key structural trends like sustainable living and longer lifespans, and work to deliver sustainable returns over the long term.”

Pillay also said the market rally since March “should be viewed with caution” and that Temasek would continue to look for investments linked to long-term structural trends. 

One could argue Covid-19 is just such a trend: the way the world changes through and beyond the pandemic will be a key investment theme, and life sciences will be only one example of that.

In this respect, it’s interesting to look at other small positions within the Temasek portfolio. Tychan is the one most obviously linked to the virus, since it’s trying to find antibody treatments, but consider Zipline, the US-based drone delivery company that is delivering medical supplies to rural Ghana, or BenevolentAI, a British artificial intelligence company that is also turning its tech towards understanding and responding to the virus.

Yet for all its smart and intuitive investments, Temasek still has its historic role as a steward of the nation’s blue chips. It has been at the heart of two key recapitalizations locally during the crisis – Singapore Airlines and Sembcorp Marine – interesting deals that show Temasek’s unique position. Unarguably, those were investments in service of the nation, bringing not only their own capital but providing the confidence necessary for other investors to join them. 

But they are also deft contrarian plays. If Singapore Airlines comes out of this crisis with a better balance sheet than peers, it’s in a good position to go shopping, to strengthen – and to be a good investment.

It is Temasek’s skill, and its challenge, to balance these roles and still deliver.