Struggling
With the new realities
It will get harder and harder for a sovereign wealth fund here to cope with the political backlash of a stumbling loss.Temasek clarification follows. By Seah Chiang Nee.
Aug 1, 2009

SINGAPOREANS are being hit by one bad news after another, the latest being the sudden departure of the man who was to take charge of their investment billions.

He is American Charles “Chip” W. Goodyear, who was chosen to be the chief executive of state investment arm Temasek Holdings, taking over from Ho Ching, after it stumbled badly in the recent crisis.

His appointment in February — the first foreigner to take charge of the national wealth fund — came as a surprise to the nation.

It also raised worries that national assets, which had already been decimated by the crisis, could be entrusted to a foreigner, however well qualified.

Now barely five months later, the American has delivered another shock — he is leaving “because of irreconcilable strategic differences”.

Despite the use of the nation’s reserves, the government insists that Temasek is operated as a company free of its interference.

The news would normally have created little interest had it not been for the massive losses.

It has just been announced that the assets it managed fell by S$40bil (RM98bil), or 22%, in the past year.

There is a valid reason for the public’s concern: its investment money comes from Singaporeans.

Any new decision, for example to raise capital to take advantage to buy into the depressed markets, could result in higher tax bills, many fear.

“We know the government well,” commented a retired civil servant.

“Because of the losses, they will eventually have to raise GST (Goods and Services Tax), road gantry charges and other service levies.”

Others interested in the outcome are some of the investment-seeking countries in Asia, to where Temasek says it will redirect more of its S$90bil (RM220bil) fund.

The Goodyear story has highlighted a fundamental weakness in Singapore — particularly in the government — as it becomes a global player: a dire paucity of local entrepreneurs.

After 44 years, this trading hub has failed to produce an entrepreneurial class that can keep up with its world ambitions.

“In a way, the state is like a rich kid who has all this money and who hasn’t quite managed the things that he has bought,” said an Asian expatriate.

The present Singaporeans are well educated, with many capabilities that help them to become South-east Asia’s richest people.

But two shortcomings now stand in the way.

Firstly, they are not renowned for possessing initiative or a business spirit, with people preferring the security of a working career.

The second is their follow-the-trend instinct, at all times. A stockbroker friend once remarked that Singaporeans, with few exceptions, make poor market traders.

“They have a herd instinct, and are too scared of losing money, often selling out shares at panic prices when others do so.”

The exceptional few are the ones who make their money.

“Global Singapore, especially Temasek, will have to rely on foreign corporate talent for a long time,” said the expatriate permanent resident.

“It is inconceivable that after so many years, it is still run by former army chiefs or bright scholars who have little or no experience of international investment or running a large business.

“Yet they are entrusted with the responsibility of managing the citizens’ hard-earned reserves.”

Few of its experienced managers who have run large companies have real experience operating in the global markets or with corporate mergers and takeovers.

A sovereign wealth fund of S$100bil (RM245bil) — like Temasek Holdings — requires someone with the global vision of Warren Buffet.

When Singapore began to sprout external wings, its overseas investments were in the region of tens, and then hundreds of millions of dollars each.

In recent years, deals have grown into billions — and tens of billions — where mistakes can be fatal.

In short, Temasek’s expansion has long outgrown its own capabilities.

Many critics put a large portion of the blame on the government.

Since independence, many of the brightest students have been channelled into super-high civil service pay, a strategy that has stifled the individual business spirit.

“It’s easier to be a fat-cat politician or a civil servant than it is to be a fat-cat businessman in Singapore,” one cynic exclaimed.

Ho Ching, the wife of Prime Minister Lee Hsien Loong, who will now lead Temasek pending a replacement, seems to recognise that the fund needs a leader with wider world experience.

It’s a complex matter that cannot be solved just with money.

Despite loosening up, Singapore remains a relatively top-down society with a civil service that works strictly by the books.

It is not an easy culture for an entrepreneur or foreign corporate leader to work in.

After Goodyear, it is unlikely to have another foreigner to manage a sovereign wealth fund here.

Until some five years ago, Temasek was a secretive organisation, whose activities were outside the purview of Parliament or the public.

Ho Ching made it more transparent and dished out financial reports.

By and large however, it remains outside any public scrutiny.

But try as it may, the state-run agency can never truly be run like a giant private corporation, where shareholders are concerned only with the financial bottom line.

In Temasek the stakeholders are citizens of the country who worry about their families’ welfare more than the company’s profits.

This could explain Ho Ching’s proposal on Wednesday to open up in future for public investment by “sophisticated co-investors” who will not sell the “family jewels” for short-term gains.

This could remove any need to raise funds through public revenue that will upset voters, and may eventually even lead to paying out citizen dividends.
(This article was written exclusively for The Star, Malaysia).

The following is a clatrification letter from Temasek Holdings published in the Star on Aug 7, 2009

Temasek clarifies its position
WE refer to “On another headhunt” (The Star, Aug 1). The article stated that Temasek Holdings’ investment funds “come from Singaporeans”, and “the nation’s reserves”.

We wish to clarify that Temasek Holdings is an investment company wholly owned by the Singapore government. We manage our portfolio and assets as an owner, and pay taxes to the Singapore government as well as to other governments where we have investments and operations.

We are not a fund manager, and do not manage the foreign exchange reserves of Singapore, nor the pension funds of Singaporeans. From our investment returns, we distribute dividends to our shareholders.

Temasek invests according to its funding capacity. Our investments are primarily funded from our investment returns including dividends and proceeds from divestments. We also tap on commercial borrowings, and the capital markets.

Our operations and investment activities do not “result in higher tax bills” for Singaporeans, as wrongly suggested in the article. Our cash flow and low gearing give us a wide range of capital raising options.

As spelt out in a recent public speech, the introduction of co-investors, if it should materialise, is meant to broaden the base of Temasek’s stakeholders, “for discipline and performance in the decades ahead”.

This is in line with our goal of building an institution that is committed to delivering sustainable long-term value, both to our shareholder, and to the wider community in Asia.

As a long-term investor, we are meticulous about governance, investment and people decisions.

We are open to non-Singaporeans for our board as well as for CEO or other management positions.

Our CEO succession review is part of our board governance and discipline where we review succession options every year. This process was put in place by our current CEO with the support of our board, and continues regardless of whoever the CEO is.

Myrna Thomas,
Managing Director, Corporate Affairs, Temasek Holdings.