Exclusive: Singapore's Temasek: evolution not revolution

Tue Mar 27, 2012 12:33am EDT
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By Saeed Azhar and Michael Flaherty

SINGAPORE (Reuters) - Temasek Holdings, the smaller but more visible of Singapore's two sovereign funds, is moving into a new phase with its investment strategy, and could look more like Blackstone Group (BX.N: Quote), another $160 billion institution, which has grown from a focused private equity firm to a global asset manager.

The shift follows setbacks since the 2008 financial crisis; the loss of $5 billion invested in Western banks; the abrupt departure of the fund's first non-local CEO before he'd even taken up the post; and the recent exit of dealmakers hired by CEO Ho Ching, the prime minister's wife, who has led Temasek for a decade.

But as it charts a new path, Temasek, the world's ninth-biggest sovereign investor, faces significant hurdles. These include a smooth leadership transition, reducing the fund's cost of capital, and investing in places like Latin America and Africa where it has little experience, say analysts and people familiar with the way the fund works.

While Temasek stresses it remains focused on long-term performance and Asia, executives say they accept that a new era is beginning for the institution, with a wave of experienced finance executives arriving, more investments in developed markets to come, and tighter controls on risk.

"I would call it an evolutionary phase," Dilhan Pillay Sandrasegara, Temasek's head of portfolio management, told Reuters in an exclusive interview when asked if a recent management shake-up signaled a transition point.

The 48-year-old former M&A lawyer, who many see as being groomed for the top job, points out that as a long term, equity investment fund with a single shareholder, Temasek has nearly 80 percent of its portfolio in listed shares, putting it at the mercy of the market's twists and turns.

That shareholder, Singapore's finance ministry, felt the pain in the wake of the global financial crisis. Temasek lost S$55 billion ($43.4 billion) in portfolio value in the year to March 2009, prompting local lawmakers and analysts to take aim at how the fund manages risk, how it decides where to invest and how it then manages those investments.

Temasek wasn't alone in being battered by the crisis, with most investors worldwide struggling, including China's then new sovereign wealth fund, China Investment Corp, which currently has a portfolio worth $440 billion.   Continued...

Dilhan Pillay Sandrasegara, Temasek's head of portfolio management, speaks during an interview with Reuters at Temasek Holdings' office in Singapore March 23, 2012. REUTERS/Pablo Sanchez