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Op-Ed: Rebalancing the Lion: The Reforms Temasek Needs
- Sean Tan
- 8 minutes ago
- 6 min read
Disclaimer: Views expressed in this article are the writer’s own and are not representative of MAJU’s views. While we make every effort to ensure that the information we are sharing is accurate, we welcome any comments, suggestions, or corrections of errors.
Introduction
With omnipresent skyscrapers and dazzling city lights, Singapore has long been synonymous with financial excellence. A cornerstone of this success has been Temasek, the state-owned multinational investment firm that has deftly managed a significant portion of the government’s reserves for the past half-century. As of 2024, it boasts a net portfolio value of S$389 billion and has consistently ranked first for sustainability and governance among sovereign wealth and pension funds.
But despite its invaluable contributions to Singapore’s economy, a recent litany of failed investments suggests that Temasek needs to implement reforms to continue generating strong returns. Moreover, while the firm promises to act ‘so every generation prospers,’ its distortion of market competition occasionally carries considerable ramifications for Singaporean consumers and limits the scale of its philanthropy through Temasek Trust and Temasek Foundation.
Temasek’s Problems
Costly Calls
Temasek’s primary issue echoes a painful lesson from two centuries ago: just as Napoleon’s ambitions skyrocketed with each conquest, so has it increasingly ventured into riskier assets which promise transformative yet elusive solutions. Notably, the share of unlisted, unproven, and less liquid assets in its portfolio has surged from 20 per cent in 2004 to 52 per cent in 2024. These high-stakes investments have seen some of the greatest losses, the most infamous being its $275 million holding in FTX, which appears obvious in hindsight given the exchange’s lack of proper accounting and its concentrated decision-making structure.
Barely two years later, Temasek lost more than 90 per cent of its investment in yet another fraudulent company, EFishery, after the company was reported to have sold only 6 per cent of the 400,000 fish feeders which it had proclaimed. Temasek took a sizeable risk to back EFishery in line with its venture into agri-tech, underappreciating Indonesia’s notoriously lax regulatory environment which enabled EFishery to deceive its investors for more than a decade.
Ironically, it was overregulation, this time by the Chinese government of its own tech darlings, that dealt Temasek an eye-watering loss of S$7 billion in 2022. Confident in China’s decade-long track record as its best-performing market, the firm forecasted a rebound in the latter half of the year and held onto its Chinese assets, leading it to underestimate the chilling effect of the regulatory maelstroms despite early warning signs. These included Xi Jinping’s intensifying rhetoric around “common prosperity” in 2021, a stark departure from his typical emphasis on giving market forces a ‘decisive role’ in the Chinese economy, and the CCP’s abrupt blocking of Alibaba’s Ant Group initial public offering the year before. The resulting loss in investor confidence was compounded by the return of zero-COVID lockdowns in major cities amid the spread of the Omicron variant, as well as the implosion of China’s property market. While Temasek defended its decision by pointing out the transience of these developments, a strategy of partial divestment and re-entry after conditions had stabilised would have allowed it to preserve its returns, especially given that many of its Chinese assets, such as Alibaba and Tencent stocks, still have yet to fully recover.
Potential Crowding Out
Temasek’s second problem concerns the domestic implications of its investment in numerous government-linked companies (GLCs) such as Singtel and DBS, collectively accounting for 30 per cent of Singapore’s stock market capitalisation. While GLCs do not receive direct preferential credit access from the government, an IMF paper suggests they tend to have a higher valuation simply because of Temasek’s investment, with some of them estimated to have such a premium of over 20 per cent. This potentially reinforces their dominance within their respective industries and crowds out private competitors, which can raise consumer prices and dampen efficiency.
Potential Solutions
Increasing Transparency
To encourage more prudent decision-making, Parliament and the public ought to encourage Temasek to be more transparent around its activities. Unlike GIC, oversight by the Auditor-General is not currently mandated, and even the flawed investment in FTX was reviewed solely through internal channels. But Temasek’s recent missteps suggest that this arrangement warrants reconsideration. Furthermore, given that Temasek’s returns contribute to the Net Investment Returns Contribution, which funds around 20 per cent of Singapore’s annual budget for vital sectors such as education, healthcare, and infrastructure, its risks are fully in the public interest.
While full disclosure of its operations may not be possible since this may fuel widespread speculation, there remains substantial scope for sharing more information through public reports. For example, Temasek could release risk metrics such as Sharpe ratios for the public to evaluate whether its investments are made responsibly, with values of above one typically indicating sound decision-making. It can also provide more detailed sectoral breakdowns, including the proportion of funds allocated to emerging industries like quantum computing and artificial intelligence, rather than the broad sector categories currently disclosed. This could be complemented with more granular information about its geographic exposure, particularly distinguishing between holdings in developed and emerging markets within each region. Additionally, Temasek would benefit from publishing scenario analyses and clearly defined exit strategies in the event of shifting macroeconomic conditions, plans that Parliament could review in advance to mitigate future losses.
These transparency measures are far from uncommon. Norway’s Norges Bank Investment Management (NBIM) has claimed that it ensures “transparency, [and that] nothing can be hidden away”, and has buttressed this assertion by expanding its social media presence and even launching its own podcast. This openness has substantially reduced NBIM’s propensity to make risky investments, as shown when the fund shelved its plans to enter private equity markets after academics highlighted the inherent uncertainty from investing in the sector, a factor which has contributed substantially to its consistent double-digit annual growth. Meanwhile, Australia’s Future Fund is not only subject to Parliamentary scrutiny, but also publishes quarterly updates and discloses full details of individual investments. These examples demonstrate that exhibiting such transparency is not infeasible, unless national security is concerned.
Safer Investment Choices
Moreover, such oversight would be less onerous if Temasek adopts a safer investment strategy, while accompanying it with more rigorous due diligence on firms about which it is unsure. Temasek ought to diversify away from, or altogether avoid, assets that are vulnerable to broader economic headwinds or carry red flags, such as its billion-dollar stakes in Alibaba, Didi, and Tencent in 2022, rather than divesting only after significant losses have been incurred. While these investments were justified in the early 2010s, when Temasek correctly anticipated their role in driving technological innovation within a rapidly emerging Chinese economy, it should have considered reducing these holdings when conditions monumentally shifted. Finally, while Temasek has understandably sought the stellar returns that unlisted investments may provide, the firm could balance out their underlying opacity and risk by shifting its exposure towards well-established, profitable behemoths in a variety of mature markets, especially in an uncertain global climate with unpredictable headwinds.
Supporting Competition
There are also numerous steps which the Singaporean government can take to curb the market distortions created by Temasek-backed GLCs, primarily by invigorating competition within affected sectors. This may be achieved by enhancing financial support for smaller businesses by bolstering the Enterprise Financing Scheme and Market Readiness Assistance grants and encouraging them to list on the Singapore Exchange by expanding on recent reforms, including its tax rebates for listings and streamlining of prospectus requirements.
Using Profits Positively
Temasek should also amplify the positive outcomes of its profitability, particularly by channelling more of its wealth into philanthropic efforts that invest in Singapore’s infrastructure, renewable energy, and community-driven projects. For instance, while the S$150 million T-Spring initiative, which is focused on upskilling the local workforce, is commendable, it amounts to barely over a hundredth of Temasek’s operating profit last year alone.
Conclusion
Unlike Napoleon, Temasek still has a golden opportunity to recognise that its past triumphs do not assure its future success. While some of the reforms it needs may appear dauntingly unprecedented, they will not only maximise the firm’s future gains but also ensure that it truly serves the broader welfare of all Singaporeans.
About the Author: Sean Tan is a former King's Scholar at Eton College and intern at the Center for International Governance Innovation who is passionate about foreign policy and economics. He has also written articles for St Antony's International Review Oxford, Yale's undergraduate US-China magazine 'China Hands', Oxford Political Review, and several other notable publications.