QUESTION: I looked through some of your bond issuance documents and your previous Temasek Reviews. I cannot see any mention of mark to market NPV in the last two years. This is the first instance I have been able to see it. Are you able to identify exactly where in your previous reports you have shared that and why did you put it out this year? I know it is your 50^th birthday and an election year – does it relate to that? Could you provide us with more colour on this?

CHIA SONG HWEE: If you were to refer to our press release in 2022, that was the first time that we have mentioned it, and it has been in our press releases ever since. So that is what we have disclosed.

LENA GOH: It is also in our media slides, presentation slides, and the transcript for the last Temasek Review¹.

CHIA SONG HWEE: Yes, but more importantly, what is the concept of mark to market and why did we decide to disclose that data point three years ago. When we look at investments at the asset level, as well as portfolio level, we obviously track and monitor the progress of the underlying business – the profitability, the growth and so on – but also the market value.

That view of market value informs us on, firstly, whether we should be holding, adding, or selling the position. It also informs us if there are certain actions we should take, working alongside the portfolio companies on value enhancement, so that the value can be materialised. It is something that all investors do as a matter of routine workflow. 

It also allows us to have a more transparent disclosure of the value and benchmark with our peers in terms of how we do over time. That is the main purpose of us making the disclosure. It has got nothing to do with the short-term implication of the portfolio value. As you can see from the chart, it is not to show the good side of it. You can see that between the three periods, there will be down years. What it actually suggests is that we will have more volatility in the portfolio as we show these data points.

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1 TR22 Q&As: If we were to mark to market, this unlisted portfolio value will rise another 10%.
https://www.temasek.com.sg/en/news-and-resources/news-room/news/2022/temasek-review-2022-faq#item_604774484

TR23 presentation: But if we were to mark it (unlisted assets) to market, it would provide an uplift of about 18 billion dollars to our portfolio.
https://www.temasek.com.sg/en/news-and-resources/news-room/speeches/2023/temasek-review-2023-media-conference

QUESTION: As you have rightly pointed out, the 10-year and 20-year TSR have been fairly stable, as opposed to the one-year TSR, which has been slightly more volatile. How concerned are you about the one-year TSR, which has seen a seven-percentage point swing, and is the focus more on the 10- and 20-year longer-term returns and, if so, why? If you could elaborate a bit more about how that relates to the NIR framework and why that is a little more important for you guys to watch?

CHIA SONG HWEE: Firstly, 10-, 20-year returns are our main focus. For the type of capital that we have, it is well-suited for us to take a long-term view and invest with that in mind. We are not a day trader investor. The other part which is important to us is building a resilient portfolio that can withstand market dislocations, and we have demonstrated the resiliency of our portfolio over the years. During the bull market, we may not be at the top in performance, but, hopefully, at the low of the market, our portfolio will be able to withstand better. 

Our portfolio is never static. We always reshape it because the environment always changes. Just take for example, interest rates. We never anticipated that the interest rate would hike up so quickly, globally. It caught many investors by surprise – us included. But we believe that while some parts of our portfolio got impacted, other parts of the portfolio also benefitted. So, creating a portfolio that is resilient is equally as important when looking at our TSR. We have to accept the annual fluctuation in the numbers. I can attest to the fact that when we had a 25% return three years ago, we did not spend a second celebrating because it is not that important. What is important is the underlying assets, whether or not the performance can continue into the future.  

PNG CHIN YEE: Just to answer the second part of your question, these are obviously historical returns. The NIR framework actually looks at expected long-term real returns, so the Government can spend up to 50% of the expected long-term real returns from the three investment agencies - ourselves, GIC, as well as MAS, and it will be based on the portfolio that each agency has, with a forward-looking view of returns. So that is really how the NIR framework is constructed. 

CHIA SONG HWEE: Connie, would you like to illustrate the point about portfolio construction?

CONNIE CHAN: What Song Hwee said about resilience and portfolio construction is exactly where we are focused – building a resilient portfolio across cycles. To give you an example, in financial services. Over the years, we have increased our investments into non-banking sectors. If you looked at our portfolio 10 years ago, it was primarily all banks, and now that mix is more like 50-50. How we have been investing is really based on a thematic approach and thinking about which sectors are benefitting from long-term secular trends; for example, like digitisation or longer lifespans. With that, we increased our exposure to areas like digital payments, to asset management, to market infrastructure and financial software. A lot of these are tied to the digitisation theme and many of these opportunities are in the US as well as Europe. And on the back of longer lifespans, there is also the rising affluence theme in the emerging markets where we have also increased our exposure to insurance. 

This diversification, both from a sector as well as a market perspective, has really increased the resilience of our portfolio across market cycles. It has also provided an uplift to our returns. This is just an example of what we have been doing in financial services – this reshaping is representative of what we are doing across our entire portfolio.

CHIA SONG HWEE: Adding to that, as Alpin alluded to earlier, because of the high interest rate, the cap rate has risen and, therefore, many real estate companies globally had to take a revaluation hit on their performance. That has also happened to our portfolio companies. On the other hand, we do own financial institutions like DBS, Standard Chartered bank, and so on, which have benefitted from a higher interest rate environment as they could generate more income from that. That gave us the offset in our portfolio which has given us that resiliency, so to speak.

QUESTION: I am curious, Song Hwee, what do you think of your performance? If you look at the 20-year TSR, it is probably the lowest in about four years. The 1.6% one-year TSR was down, regardless of which metric you use. Did you miss anything or was it all good, from a Temasek performance perspective? What could you have done better?

CHIA SONG HWEE: One should never be satisfied with one's work. We are always pushing to be better. But what I want to emphasise is that the portfolio construction should be looked at over a longer period of time – 10, 20 years. And even within that construct, that number may move around. It all depends on what is the starting point and what is the ending point, and we may have extreme periods. For example, we have mentioned that our 20-year number has declined from 9% to 7%. That was because we had a very strong year post-SARS recovery and that has dropped off from that window. So, we will have events like that. 

So even as we look at the long-term returns, there will be periods of adjustment that we need to go through. Going back to page 8 of the presentation, it is a very good illustration.  

If you look at the last 20 years' performance, we have done well relative to the various components of our portfolio. You can see that because of our position in Singapore assets as well as our investments in China, we did pretty well in the first 10 years of the 20-year period. For the more recent 10-year period, the picture has changed. China capital markets have underperformed, so has STI, and that also had a drag on our overall performance. Our doubling down in the developed market, given that the portfolio is still young, has not been able to generate the returns to offset the pressure that we are getting from the China market. 

Given the portfolio of our size, we will have changes in the market environment that pull from one direction to the other. And when we try to adjust our portfolio, we will not see the result immediately. Given the size of our portfolio, we always say internally that it is like a tanker, it is like an aircraft carrier. When we say "turn", it will actually take quite a bit of time for us to make that shift. But what I think, rest assured, is that we have to position our portfolio for the future, bearing in mind the geopolitical environment, as well as the relative competitiveness of each of the economies. 

That is the reason why in our investment stance, we talk about us allocating more capital to the developed markets like the US, at least in the next 12, 18 months, and also increasing our focus in India. So that is what we try to do to address periodic market changes that may not be in our favour. 

QUESTION: Do you think the balance between public and private markets will remain the same in the future?

PNG CHIN YEE: The way we look at investments, we do not have a target for private or public assets, so what we do is to really look at our themes and see where the opportunities are that will meet the themes and meet our commercial returns objectives and so the private-public mix is really an outcome of our investment activity. Having said that, as you would know, we have actually been able to achieve a premium on the returns of our private assets over the years.

QUESTION: We heard earlier from Connie that Temasek achieved liquidity from the public listing of unlisted assets. Which exit has reaped the most liquidity for Temasek?

CONNIE CHAN: When we look at our companies going from private to public, I think it is not just the amount of profit that we may reap, but it is also the appreciation that can happen when they are public companies as well. One of the benefits we have is that we do not have a mandate to only do private or only do public. So, we can actually hold investments when they are private and even when they are public. If we feel there is still value in the company, we can continue to hold it. A good example is Adyen. We invested in the company in 2014. We continued to support the company when we saw it break out as a real winner in the payment space. It went public in 2018 and the amount of appreciation from the time it went public to now is actually quite substantial. So, when we look at our investments, it is not just about divesting once it becomes public. It is also about, at that point, do we still see value in the company and there is a lot of appreciation that can still happen when they are public companies.

QUESTION: Of the S$7 billion net divestment, are you able to give a breakdown of how much of that was in China assets and how much was not?

PNG CHIN YEE: Out of the divestment amount, a large part of that was actually from the redemption of bonds from Singapore Airlines (SIA) as well as the preference shares from Pavilion Energy. The divestments from China are actually not a material part of that entire amount. 

LENA GOH: To add on, if you take Pavilion Energy and SIA away, it is actually a net investment year for us.  

QUESTION: The sustainable living trend is 12% of this year’s NPV, and I know it is the first time Temasek disclosed this proportion this year. It includes institutional assets and liabilities, but the portfolio value of S$44 billion excludes institutional assets and liabilities. Can I get an apple-to-apple comparison? Do you have the proportion of the sustainable living trend out of the total net portfolio value for 2023, including institutional assets and liabilities?

PNG CHIN YEE: You should not worry about the technical definitions because it is 12% of the invested portfolio [correction: NPV], so you should think about it from that perspective. Last year, we disclosed a slightly different number – if you look from a comparative perspective – because we have aligned our taxonomy to emerging taxonomy in both sustainability-linked taxonomy as well as climate transition taxonomy, and these are all new taxonomies. As you know, there is a whole debate around taxonomy and their developments, so with these new taxonomies that have come in, we have actually aligned the definition. So, if you look from last year to this year, I think the number would be about 3% last year [correction: 5%] and most of that will come from taxonomy change.

QUESTION: I have a question on green transition financing. In one of the slides of the presentation, you gave some examples of Temasek doing this with partners. Can you elaborate on Temasek's approach to blended finance, and do you plan to have more projects or encourage more partners to participate in blended finance for climate projects or green transition projects?

CONNIE CHAN: Part of our sustainability strategy is also to be active in the sustainable finance space because there is a lot of sustainable financing that is required in the region and there is a gap in terms of climate financing. As we mentioned, we have partnered with others to try to bridge that climate financing gap.

One example is Pentagreen, which is a sustainable infrastructure debt financing platform that we set up together with HSBC. Now, even though it has been less than two years since we set it up, we are actually very excited about the growth prospects as well as the impact that Pentagreen can make. Pentagreen's mandate is to finance situations that are considered marginally bankable, or those that are just outside the remit of traditional lenders. For example, last year, they financed a solar developer in the Philippines, to finance a portfolio of six solar projects which had a gross capacity of 490 megawatts. Only just last week, they also announced another transaction with a company called BECIS, to finance a portfolio of 14 waste energy projects, mostly in Indonesia, as well as parts of Southeast Asia and India. So, we see a lot of potential with Pentagreen targeting that sustainable infrastructure space where some of these projects may not get the access to financing. So, we feel that it is very important to try to tackle this climate financing gap because there is going to be a lot more financing needs to transition Asia towards a greener economy.

We have also been active with the MAS. Their initiative called FAST-P, Financing Asia's Transition Partnership, is a blended finance approach to try to partner together private sector, public sector as well as philanthropy in a blended finance approach to also catalyse financing for sustainable and transition finance in the region. So, this is going to be a growing market in Asia because a lot of financing is going to be needed. We are very excited about the prospects here.

CHIA SONG HWEE: I just want to add that what we are doing here is only the tip of the iceberg, but what we hope to show is to put something together, create a framework where more people could also join – so, be a little bit more catalytic in our approach so that more institutions and funds will come to support this effort, because transitioning to greener energy is really what we need. 

QUESTION: Following up on the question on blended finance and catalytic capital – I know Temasek is part of the FAST-P together with MAS. There is Temasek Trust, which does the philanthropic side of things, but when it comes to blended finance, will you take a position where you choose to provide concessional capital or lower the market type of returns, which is, part of the structure of blended finance, as you need someone to come in to absorb more risks.

CONNIE CHAN: The beauty of blended finance is that you can segment the risk and the return profile according to the investor’s preference, and it is a model that has worked well in other parts of the world. It has not really been done at scale in this part of the world, so I think it is great that the MAS is taking leadership in that respect. For ourselves, when we partner, we are looking at the commercial tranches as we are a commercial investor. But we are also partnering with those that may want to catalyse and mobilise financing in the concessional tranche. A lot of that is the public sector or philanthropies that will look for that, but for ourselves, we are looking at the commercial tranche.  

QUESTION: Some of your portfolio companies have seen a blowback because of the commercial real estate downturn, so where do you see this downturn going? Do you think that they will be recovering soon, and do you foresee that there will be more investment cutbacks in the area?

ALPIN MEHTA: If you look at our direct investment stance in real estate over the last five years, we have been more active on the credit side of the real estate, and that is because we see relatively much better risk-adjusted return on the credit side of real estate, wherein you can get significant amount of downside protection through equity subordination and we have been actively investing in that space, in asset classes like multifamily, other forms of living, data centres, logistics, hospitality, in US and Europe. 

But to the question of commercial real estate, if you look globally, I think the asset class has been impacted by high interest rates. If you know, cap rates are fairly closely correlated to interest rates, and with interest rates going up, we have seen cap rates move up across all asset classes. If you look at pretty much all the companies and owners of real estate, they would have to take some amount of revaluation losses this year. But within commercial real estate, I think there are assets that are still benefitting out of secular tailwinds, so data centres are one of them. Logistics is the other asset class that is still benefitting out of that. Offices are certainly impacted to some extent by a confluence of a few factors – interest rates, work from home, and sustainability. The industry will have to adjust with that as it moves along.

QUESTION: My question is about data centres. Obviously, there has been a huge hype among private investors, especially in places like Malaysia. Do you see the sector being a bit overheated right now?

ALPIN MEHTA: It has certainly been an asset class that has seen a lot of demand, especially from hyperscalers in the recent times, given the growth of AI and computation. You see that demand across all the markets – it is a very global asset class, in that sense. However, I think there needs to be a balance between the growth of data centres and energy consumption and the implications of that on the carbon footprint. The owners will have to find that balance, in terms of working on newer technologies to reduce the carbon footprint of data centres, as well as use more or switch to more renewable sources of data centres as an energy consumption. Overall, on data centres, I think you still see strong demand. From our perspective, we actually have portfolio companies that are fairly strong in the data centre space, for example, STT, Singtel, and Keppel that has a big data centre business, and others as well. It is a space that we remain very interested in and we are also looking at investing more alongside the strong operating partners within that space.

CHIA SONG HWEE: But discipline remains an important thing for us. When there is a lot of capital coming into any areas, one has to be watchful. It can be the AI hype, it can be data centres, or it could even be private credit, which has recently been very hot as well. We have to have the discipline on valuing the opportunity and taking the appropriate risk measures when we invest, or not. 

QUESTION: I understand that this is your first time disclosing your fund portfolio. Just curious if there was any major milestone from last year that triggered you to disclose these fund investments or unlisted portfolio? Is there any chance that you would disclose or introduce new metrics other than IRR for your fund investments, like TVPI or MOIC in the future? 

PNG CHIN YEE: Actually, this is not the first time we have disclosed our fund investments. If you pull up the chart which shows our private assets, we have actually been disclosing that over the last few years as well. 

What is new this year is that we are sharing with you what would be the mark to market value of this whole portfolio, which would include not just a fund portfolio, but Singapore portfolio companies, asset management companies, as well as other private companies. The way we would look at our results is to look at total shareholder returns. So, that will be a primary metric that we would show, rather than have individual sub-portfolio returns. 

CHIA SONG HWEE: I would just complement that by saying for that asset class, we obviously focus on the overall returns, but monitoring the distributed to paid-in capital (DPI) along the way is very important because that will show the ability of our general partners (GPs) in their monetisation. For example, if we are looking at a GP raising a new fund, their track record of DPI is one of the key performance metrics that we look at, but I do not think it is meaningful for us to report it in the sense of our performance. That is the reason why we do not show it. 

PNG CHIN YEE: I would just add that performance has been very good. 

ALPIN MEHTA: Adding one point to that, when we invest into private equity funds, returns are definitely the driver of our objectives of investing in that. But even beyond that, we actually do a lot of co-investments and co-underwrites with our private equity funds, and that also allows us to create that bridge between our partners as well as our direct team within the firm. This allows that deeper understanding and insights into the markets. So, there are other benefits that come beyond the returns in that investing business as well. 

QUESTION: Is there any co-investment that you have made from last year that you could talk about?

PNG CHIN YEE: We have done quite a few co-investments last year and this year. The latest one we did was with Brookfield, for example, on Neoen – renewables in Europe, and last year, we have done a few. 

ALPIN MEHTA: Yes, that is something that we do at a pretty continuous pace and something that is core to our strategy.

PNG CHIN YEE: We have done a few in the financial services space as well.

CONNIE CHAN: Actually, financial services has been a busy time for co-investments. For example, we recently announced an investment in Specialist Risk Group, which is an insurance brokerage business, together with Warburg Pincus in the UK. 

QUESTION: There has been talk about reviving Singapore's stock market. What has Temasek done so far to help this and what are some actions within your control that you think can be implemented?

CONNIE CHAN: There is a lot of news around that recently. What we want to emphasise is that our mandate is to generate long-term sustainable returns. That is the key primary focus for us. And where a company decides to list, that is really a multifactor decision. There are going to be pros and cons, depending on which venue, but ultimately, it is up to the companies themselves to decide. But that said, as you saw in the presentation earlier, 53% of our portfolio is based in Singapore, with many of those listed in the SGX. We also have 65 Equity Partners that look to invest in companies that want to list on the SGX. So, that is not our primary concern. Our focus is really on delivering long-term sustainable returns and ultimately, where someone decides to list will be up to the companies themselves.  

QUESTION: I know that you guys have been quite a high-profile and high-ranking agritech investor in the last few years. You seem to have scaled back recently in some high-profile start-ups like Apollo Aquaculture in Singapore that has gone into liquidation. I wanted to ask what you think went wrong for some of these investments and are you adjusting your investment approach because of what has happened in the sector? 

CHIA SONG HWEE: We see the agriculture sector as an important part of our portfolio because human beings need to consume, and the population is ever growing. The traditional approach of getting food is not sustainable, so we do need to have innovation around agriculture in order for us to satisfy the growing needs. So, as with any early-stage tech investment, there is inherent risk, much more so than companies that have been long established. So, we should expect some companies to struggle or even fail. But, more importantly, how we look at it is as a portfolio asset, whether or not that portfolio has does well over time. And that is what, as an investor, we focus on. 

We are not retreating from investing in the space, but what has transpired due to weather, climate change, as well as the dialling down of VC funding – finding companies in that space and doing follow-on investments have been a lot lesser compared to the past. 

So, I think it is a transition. We all need to adjust to some of these new phenomenon that we are seeing. 

We have also invested in companies that are not necessarily at the leading edge of agritech. In water for example, we have invested in Rivulis, which is the second-largest irrigation company in the world. That is actually a very resilient business and is very much needed because of the reduction in water consumption.  

QUESTION: The markets in US and India have been able to offset the drag brought about by China this time around and it seems that the focus is still going to be US, going forward, being the destination for Temasek's capital. How long do you think you would have to rely on the US markets to maybe offset the drag from China and specifically on the Singapore market, I mean the public market also has its own issues, it is not doing too well. Any concerns about how that might impact Temasek's portfolio as well and how do you plan to navigate that?

PNG CHIN YEE: As Song Hwee has mentioned, we opened up offices in New York and London 10 years ago, precisely to diversify away exposure from Singapore and China, and we saw opportunities in those markets, so we have been actually building up our presence, our capabilities, and our exposure in those markets. But if you look at it, in some ways, we are still very underweight in those markets, so we expect the trend to continue for right now and so we would want to, as you rightly pointed out, continue to invest in both India as well as the US.

We do see opportunities across different spaces. For example, in the US, whereas you might think that valuations are quite high, particularly with the Magnificent 7, actually if you look beyond that and you look at the S&P Equal Weight, valuations still look reasonable in certain sectors. We see US as a very deep market with a lot of innovation and so that is a good place for our capital to be in. 

Similarly in India, we have seen the stock markets scale new heights, but if you dig down and you peel the onion a little bit and you see – in the financial space, in the banking space, for example – valuations are still reasonable and we have historically had a very strong financial services portfolio in India, so we will continue to build on that, as well as look at healthcare and consumer. Last year, we made a large investment in the healthcare space with our ~S$3 billion investment in Manipal Hospitals. These are deep markets which afford us the compelling risk/rewards for the moment, and so we will continue to invest in those markets. We are also doing a lot in terms of active engagement with our Singapore portfolio companies which are an important part of our portfolio. Maybe, Song Hwee, you would like to talk a bit about that. 

CHIA SONG HWEE: Yes, but before I do so, let me touch on China. As I mentioned earlier, we are investing in newer areas, focusing on the domestic market and continuing to reshape our portfolio to be more future proof, so to speak. We hope that with the reshaping of our portfolio plus the drop in the market value that has already occurred, that the downside will be more moderated, if there is any. But obviously, we are expecting in due course that the market will recover.

Specifically for our Singapore portfolio company, 40% of our portfolio value comes from our Temasek Portfolio Companies (TPCs). Over the years, many of them have gone through a transformation journey. DBS has gone through digitisation, giving it a very big push. CapitaLand has restructured their business into fund management as well as development and so on, and you can see the good results that they have brought about. And as far as Temasek is concerned, as Connie has mentioned, our job is to engage our portfolio companies so that they can produce better performance and build businesses that are sustainable into the future. 

So, we do not actually differentiate whether or not it is a Singapore based or a non-Singapore based company. The engagement to create value, to enhance shareholders' value, is consistently applied.

QUESTION: With regards to China, you mentioned the cautious approach to the country, but, still, despite this situation, are there any particular areas where you see strong potential?

CHIA SONG HWEE: As you know, we have been investing in China over the last 20 years and we remain in China and continue to look for investment opportunities. The reason why we say we are cautious is because while the Chinese government, in the recent one and a half years, have been very pro-growth in terms of their policy stance and their encouragement of foreign investors to continue to invest in China – there are some structural challenges that still need to be resolved. 

Much of the work so far has been on the supply side. Now they are beginning to work on the demand side, and we need to see a little bit more progress on that front before we can invest at a much faster pace. We are watchful, but we remain invested in China. 

As for the sectors that are of interest to us, it is very much ideas or companies that drive domestic consumption or satisfy domestic consumption. So one area would be biotech, the other would be import substitution, robotics and, more recently, where we are spending more time is the electrification as well as the EV value chain. Now, while some of these businesses have export potential, given the geopolitical risk, we are really focusing on companies that solely rely on the domestic market and are less reliant on exporting to other countries.

QUESTION: You mentioned you are keen to scale up your exposure in Japan. May I ask the reason why and how you will be expanding your footprint there?

ALPIN MEHTA: We see Japan continuing to benefit out of the structural and cyclical tailwinds. If you would have seen, there have been a lot of corporate governance reforms that are happening in Japan and, over the last couple of years, we have seen a pickup in private equity activities in Japan. These are some of the funds that we are investors with, so our idea is to invest alongside them, do co-investments alongside them. We have also been increasing our overall exposure to Japan through capital markets. Today, Japan is about 1% of our portfolio, from almost nothing a couple of years back. 

Having said that, it is still early days for us in Japan. We are still just 1%, but if you look at some of our portfolio companies, we do have some exposure to Japan. For example, Pavilion Capital, which has been fairly active. Vertex has just recently launched a fund there. We have real estate companies like CapitaLand and Mapletree; they have also been in Japan for a while now. That kind of summarises our view on Japan.