Since its foundation in 1974 Temasek Holdings, the global investment firm based in Singapore, has demonstrated a formidable capacity for navigating an ever-changing financial climate. Despite managing an expansive portfolio valued at S$382 billion as of 31 March 2023, the firm has not been immune to the challenging financial landscape marked by persistent inflation and tightening monetary conditions, which have driven interest rates higher and could lead to lower real returns this year.
The Temasek Review 2023 media conference drew attention to several other key factors that have had a direct impact on investment returns. These include the ongoing US-China trade war, the geopolitical situation in Ukraine, increasing cyber risks, trade restrictions, and the escalating “climate crisis”, which is prompting a global business shift towards sustainability at a rapid rate.
In the face of such multifaceted challenges, Temasek strategically adjusted its course in the previous year, adopting a conservative approach amidst global uncertainties and slowing its investment and divestment pace. With liquidity tightening and deal activity slowing worldwide, Temasek made investments of S$31 billion and divestments of S$27 billion, resulting in a net investment of just S$4 billion compared to the prior financial year’s net investment of S$24 billion.
Temasek fintech investment dips following 2-year high
In particular, Temasek drew back on investing in fintech globally — a sector that Singapore’s state-owned investor had traditionally been high on, including rising investment in the sector for the last two consecutive years. Temasek took part in at least eight fintech-related funding rounds in each of 2021 and 2022.
Even as the global economic outlook worsened, the investor remained bullish on fintech heading into this same period last year. In 2022, Temasek took part in funding rounds involving fintech companies from India (FPL Technologies, OneScore), the UK (Thought Machine), Hong Kong (Amber Group), and ShopBack from Singapore.
Most notably, Temasek poured additional investment into Bahamas-headquartered cryptocurrency exchange FTX Exchange — which experienced a cataclysmic implosion and forced Temasek to completely write down its US$275 million investment in the digital asset fintech. This loss contributed to the overall drop in portfolio value of 5.2% in the year ending March 2023, down from the record growth it recorded the previous year.
Singapore remains Temasek’s primary investment market in 2023, followed by China and the Americas. Singapore portfolios have maintained their resilience somewhat amidst the turmoil, but global investments took a hit due to higher interest rates and falling valuations, particularly in the technology, healthcare, and payments sectors.
Worldwide downturn slows Temasek fintech investment in 2023
The impact has been large enough that Transportation & Industrials has overtaken Financial Services as the largest investment sector for Temasek in 2023, and combined they comprise over half (54%) of the portfolio. Along with a slight decrease in exposure to Financial Services due to net divestments and a decline in market value, particularly in its payments portfolio, Temasek has possibly overstretched its investment in the fintech space in 2023 after the buffer provided by the preceding two strong years.
And it is not just the poor economic climate or the disastrous collapse of FTX. At the Temasek Review 2023, CFO Png Chin Yee cited the recent US$1 billion fine for alleged “illegal acts” the Chinese government slapped on Ant Group, another prominent Temasek fintech holding, in a sweeping crackdown on the country’s tech sector.
Although the hefty fine signifies that saga is likely drawing to a close, Ant, which operates the world’s largest digital payments platform in Alipay, will face significant restructuring and the perils of operating in China’s volatile and increasingly state-controlled financial markets. About a fifth of Temasek’s investments are in the PRC.
The sovereign fund along with fellow state-owned investor GIC also face uncertainty after they joined the latest US$6.5 billion fundraising round by payment processing behemoth Stripe this year, at a valuation of around US$50 billion — almost half of what was Stripe’s valuation peak of US$95 billion in 2021. The fate of one of fintech’s biggest startups will largely depend on the recovery of a depressed US IPO market, after Stripe failed to capitalise on its 2021 peak by going public that year.
Stakes in traditional banks such as DBS, ICBC (China) Limited, and Indonesia’s HDFC Bank Limited, alongside investments in payment giants like PayPal and Adyen, online billing and receivables software BILL Holdings, and digital insurers such as China’s Ping An Insurance Group, have all contributed to shareholder returns.
Although valuations and revenues in this sector contracted in 2023 to yield a negative 1-year total shareholder return of minus 5%, these fintech interests have nonetheless helped to cushion Temasek’s portfolio value over a longer period, ensuring a steady recovery from the lows of the COVID-19 era with a three-year total shareholder return of 8%.
Growth areas provide Temasek portfolio boost
The world’s 10th-largest sovereign investor instead pivoted to a number of focus sectors it has identified over the years, which are poised to benefit from longer-term and emerging trends. These growth areas include Consumer, Media & Technology, Life Sciences & Agri-Food, and Non-Bank Financial Services, which would include some of its fintech interests along with the likes of Visa and Mastercard. These sectors have experienced considerable growth, accounting for 32% of the portfolio, up from just 5% a decade ago.
Temasek ended the financial year with a net portfolio value of S$382 billion, 1.8 times its portfolio value in 2013, before the company had ventured significantly into the Non-Bank Financial Services space. Over the past decade, major developments in human-AI interactions, Industry 4.0 and 5.0, and the ongoing digitalisation of businesses have catalysed significant evolution of Temasek’s portfolio.
With its eye on future shocks, Temasek aims to leverage its highly liquid position to continue investing in emerging tech trends, new sub-sectors, new markets, and co-investment opportunities. As a long-term investor, Temasek says it is well-prepared to weather short-term volatility in performance, as its investment strategy over the past 20 years has shown, with 10- and 20-year total shareholder returns standing at 6% and 9% respectively. The Temasek Review 2023 media call identified these figures as more stable and representative of the company’s performance.
Despite facing challenging markets in the short term, Temasek has stated its intention to continue evolving its portfolio to be resilient and forward-looking. Its positive net cash position provides the flexibility needed to seize future opportunities. The most notable of these emerging opportunities is in generative AI, which holds immense potential to enhance productivity, transform industries, and spur innovation.
This post originally appeared on TechToday.