Temasek ups investment pace, boosts unlisted exposure
Temasek Holdings’ exposure to unlisted assets reached a record high as the state-controlled Singaporean fund made S$24 billion ($19.3 billion) in new investments for the year ended March 2014, the most in six years.
Temasek ended the 12-month period with a portfolio worth S$223 billion, also a record high, according to the latest annual review. This compares to S$223 billion in 2013 and just S$90 billion in 2004, the year the fund was formed. Group net profit came to S$10.9 billion, up marginally on the previous two years.
Exposure to unlisted assets now stands at 30% of the overall portfolio, compared to 27% in 2013 and 14% in 2004. This uptick in part reflects Temasek's purchase of a 24.95% stake in health and beauty retailer A.S. Watson for $5.7 billion, one of the single largest transactions ever completed by the fund and a significant bet on the growth potential of the consumer sector in Asia.
Yibing Wu (pictured, center), who joined Temasek as head of China last September from Goldstone Investment, told a press conference that the rise in unlisted exposure did not represent a strategic shift; rather, it primarily reflected strong performance by existing privately-held assets.
The overall increase in new investments - while divestments dropped to S$10 billion from S$13 billion - made for Temasek's most active year since 2007-2008, when S$32 billion was pumped into assets such as Merrill Lynch. Financial services is still the mainstay of the portfolio on 30% as Temasek boosted its minority holdings in the likes of insurer AIA and Industrial and Commercial Bank of China.
A further 23% of the portfolio is in technology, media and telecom, with 20% in transportation and industrials, 14% in life sciences, consumer and real estate, and 6% in energy and resources.
Asia continues to account for the bulk of assets - 31% in Singapore, 25% in China and 16% in other markets in the region - while exposure to North America and Europe increased slightly to 14% from 12% a year earlier and exposure to Australia fell to 10% from 13%.
Temasek seeded two new platforms to provide growth capital for small and medium-sized enterprises (SMEs) in Singapore - Heliconia Capital and Clifford Capital. They are intended to complement the work of wholly-owned venture capital unit Vertex Venture, which last year launched two new funds, a S$100 million vehicle to invest in Singapore-based start-ups and a $80 million vehicle for North American opportunities.
These platforms now fall under Temasek's Enterprise Development Group (EDG), established in 2013. It is also responsible for Pavilion Energy and an innovation unit that has invested in two US VC funds - managed by Lightstone Ventures and Andreessen Horowitz - in order gain early insights into emerging technologies.
Temasek has a private equity fund investment team that backs independent GPs and in 2012 it set up Pavilion Capital, an investment vehicle that supports small to mid-size privately-owned businesses in Asia, mostly via smaller regional GPs. However, less than 10% of the overall portfolio is invested in third-party managed funds, across private equity and other strategies.
Earlier this year, Temasek launched a co-investment vehicle, allowing six outside institutional investors exposure to its PE funds portfolio. Managed by Ardian and 38%-owned by Temasek, the vehicle holds interests in 36 funds across different vintages, geographies and sectors. It is part of a broader effort to include new investors that will ultimately involve retail participation, but that is still some way off.
"We put that together as an investment platform and offered that to institutions as the first step and we will foresee in the future, they might be able to open for the retail cluster but that's in the midterm," Wu said of the co-investment vehicle.
Temasek's one-year total shareholder return (TSR) normalized to 1.5% for the year ended March 2014, compared to 8.86% the previous year. The TSR for 2011 and 2012 was 4.6% and 1.5%. TSR is 9% on a 10-year basis and 16% since inception, against a risk-adjusted hurdle rate of 9%.
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