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Questions about Singapore’s national/ public wealth fund Temasek

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A few months ago I made some notes regarding Singapore’s authoritarian economic liberalism. This model has attracted a lot of attention recently (including in The Fourth Revolution: The Global Race to Reinvent the State by John Micklethwait  and Adrian Wooldridge).

A recent article in Foreign Affairs touted the Tamasek model. The authors of the article are publishing a book on this topic, soon: The Public Wealth of Nations.

However, more interesting than the article were some of the comments, which set off a bit of a search for the truth about Temasek.

Let me highlight key sections of the main article, first.

On average, governments are mismanaging their public assets. Many economists see these inefficiencies as arguments in favor of privatization. But privatization comes with its own risks: crony capitalism, corruption, and dysfunctional regulation. Luckily, there is a third way: governments can assign the task of professionally managing their assets to National Wealth Funds.

National Wealth Funds are the perfect compromise: they keep public assets under government ownership while simultaneously preventing undue government interference. The state appoints the auditors and the board responsible for the portfolio, and decides which assets should be sold when sufficiently developed, but it cannot influence how the fund itself is managed. This strict separation guarantees that politics will not get in the way of good asset management. When governments control public commercial assets, opportunities for better management are ignored or fall prey to political meddling, clientelism, and corruption.

National Wealth Funds also enable governments to consolidate their commercial assets, which allows professional managers to create an integrated inventory and business plan for the assets as a whole. The world’s leading National Wealth Fund, Singapore’s Temasek, established in 1974, boasts an average annual return of 17 percent, a track record that would be impressive even in the private sector.

Now for the comments which interested me quite a bit.

Charles

If you are going to hold up Temasek as a model you must mention that the CEO for the last 12 years has been the Prime Ministers wife. She gives no interviews and has never written the letter in their annual report. Hardly a model of accountability. Further the 17% annual IRR since 1974 is largely due to their historical practice to government transfer of assets at very low valuations which Temasek then takes public and public market value. If transferred at market value the returns would be much lower as they have been since 2002. While the disclosures are selective and self serving at least there are some.

nickwilde

Absolutely right. Temasek never gives meaningful IRR figures. Despite its glossy annual reports, it is effectively impossible for any outsider to assess how it is performing from year to year. What you can do is look at the many large investments it has made over the last 10 years that have gone badly wrong. If you look at its record in banking alone, it has lost billions on Barclays, BoA and is now suffering the headlong fall in StanChart’s share price. This poor record is replicated in other sectors. There is no accountability and, of all the experienced candidates who could have been appointed to run it, the most qualified was, by an extraordinary co-incidence, the Prime Minister’s wife. Having stepped down once for presiding over a disastrous series of investments, she was reinstated and remains in office. Lucky Singapore. This is a very superficial article which appears to show no understanding of the subject.

Charles 

Question is whether the IRR figures are audited.

The Temasek financial disclosure is completely irrelevant because they only show the Temasek Group accounts which purposefully muddle up the Temasek Holdings accounts with those of all their portfolio companies thus rendering the entire set of accounts useless. And how about those footnotes? Not.

They use the concept of beating their cost of capital or Wealth Added as their primary metric for performance. However for the last 12 years in total that number is negative so they have destroyed capital while they have increased head court dramatically. This is in spite of taking dubious actions to lower their cost of capital by adjusting down their Market Risk Premium which no be else does. They now are so embarrassed by their performance they hardly even mention WA and bury it in the back pages excluding it from the Chairmans letter and all the full page ads they take out.

Also they tout the principal of no WA, no bonus yet the people there are still getting paid a bomb and the Temasek parking lot is full of very expensive, shiny new cars. Where is the oversight.

I’ve explored further and this is what I find:

Why sovereign funds are a bad idea: Should India Set up a Sovereign Wealth Fund? It’s a Bad Idea

Some mess-ups by Temasek.

Research paper: A Brief Research Note on Temasek Holdings and Singapore: Mr. Madoff Goes to Singapore.

The summary of this paper is provided here. In brief, the idea that Tamasek has achieved 17 per cent return over 35 years is refuted vigorously. 

Temasek controversies.

MY CONCLUSION

Singapore is a secretive place. One cannot rely on public reports of the way its national fund is managed. There is need for significant caution while considering this model/option. It has significant benefits but these seem to come at a high cost.


Source: http://www.sabhlokcity.com/2014/12/questions-about-singapores-national-public-wealth-fund-temasek/


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