Singapore's Temasek launches internal review of FTX deal

Answering questions in parliament, Lawrence Wong admitted that the rapid and inglorious demise of FTX has damaged Temasek's reputation in addition to causing financial loss. He noted that the government-controlled investment fund has already issued a statement explaining the pre-investment due diligence process and initiated the internal review, which will be conducted by an independent team.

"Some members have suggested implementing more guidelines and safeguards over the investments made by Temasek and GIC. That is understandable. But the governance structures in place today for Temasek and GIC are already more extensive than those of a typical company," Wong said.

Observing that both groups are audited externally and subject to presidential oversight, he said there was no need for additional checks and that boards should be insulated from political pressure. Wong said the loss should be viewed in the context of Temasek's overall early-stage investment portfolio, which has outperformed industry averages over the past decade with mid-teens returns.

FTX received some USD 2bn in private funding and its valuation surpassed USD 32bn at one point. After clues of insolvency were detected in leaked balance sheet data, the company was effectively reduced to ashes in less than 48 hours last month. The subsequent bankruptcy protection filing was damning in its assessment of FTX's approach to corporate controls and financial record keeping.

Across two funding rounds in October 2021 and January 2022, Temasek invested USD 210m for approximately 1% of FTX International and USD 65m for about 1.5% of FTX US. It has written down the entire investment, irrespective of the outcome of FTX's bankruptcy protection filing.

Ho Ching, who was CEO of Temasek between 2004 and 2021 and who is married to Singapore's prime minister, has spoken out in support of the write-down.

Ho said in a Facebook post that "a loss in what may turn out to be a badly managed company without adult supervision is egg on our face." Moreover, she admitted that Temasek cannot mitigate the loss by saying it backed FTX alongside brand-name investors like BlackRock, SoftBank, and Sequoia Capital, and she warned of the risks of investing with a FOMO [fear of missing out] mindset.

However, Ho also noted that some of Temasek's best deals came from taking a contrarian view on situations. She said that the group's status as a balance sheet investor enables it to think long-term and look past "twiddles and sentiments of the market."

In addition to Temasek, BlackRock, SoftBank Vision Fund 2, and Sequoia, FTX received funding from the likes of Bond, Institutional Venture Partners, Iconiq Capital, Insight Partners, Lightspeed Venture Partners, Thoma Bravo, Ribbit Capital, Tiger Global Management, New Enterprise Associates, Steadview Capital, and Ontario Teachers' Pension Plan (OTPP).

Several have spoken out regarding write-downs, stressing their limited exposure to FTX as part of more extensive portfolios and their adherence to due diligence protocols. Sequoia, for example, noted that the USD 150m loss on FTX incurred by its third global growth fund is offset by USD 7.5bn in realised and unrealised gains. It also reminded investors that it is in the business of taking risk.

"Some investments will surprise to the upside, and some will surprise to the downside. We do not take this responsibility lightly and do extensive research and thorough due diligence on every investment we make," Sequoia said.

OTPP invested USD 75m in FTX International and FTX US in October 2021 and committed a further USD 20m to FTX US in January 2022. These investments were made through Teachers' Venture Growth, which backs emerging technology companies. It observed that not all early-stage deals perform to expectations, but TVG has "delivered solidly on intended objectives."

OTPP added that the underwriting of FTX involved third-party advisors and covered commercial, regulatory, tax, financial, and technical areas. "Recognising that no due diligence process can uncover all risks, especially in the context of an emerging technology business, the investment in FTX was sized moderately in relation to TVG and the overall portfolio of the Plan," it said.

Temasek explained that it targeted FTX as "a leading digital asset exchange providing us with protocol agnostic and market neutral exposure to crypto markets with a fee income model and no trading or balance sheet risk." The due diligence process lasted eight months and included input from external legal and cybersecurity specialists and extensive background interviews.

"We continue to recognise the potential of blockchain applications and decentralised technologies to transform sectors and create a more connected world. But recent events have demonstrated what we have identified previously – the nascency of the blockchain and crypto industry and the innumerable opportunities as well as significant risks involved," Temasek said in a statement.

It pledged to continue investing in new sectors and emerging business models as potential drivers of future value and as a means of understanding the likely impact on existing portfolio companies. Temasek added that it applies illiquidity risk premiums and venture risk premiums to early-stage investments, and that blockchain accounts for a small portion of its direct early-stage exposure.

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• Topics
• Southeast Asia
• Expansion
• Write-off
• Technology
• Singapore
• Temasek Holdings
• blockchain
• Cryptocurrency
• Sequoia Capital
• OTPP