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The Roots of Temasek

We are an active investor, a forward looking institution, and a trusted steward – investing to create value for generations to come.

Said to have been derived from the Malay word tasik, which means “lake” or “sea”, references to Temasek have been made in a plethora of literature: Tumasik, a vassal of the Majapahit empire in a 1365 Javanese court poem; 淡马锡, or Tan-Ma-Si, as Wang Dayuan described in a 1349 account of his travels; and Sach-ma-tich, as Vietnamese records noted the arrival of Malay envoys in 1330.

Temasek was birthed as a pragmatic experiment of 20th century Singapore, as this modern city-state was defining its place in the world, after a tumultuous beginning. Founded in 1974, Temasek  took over an eclectic collection of some 35 companies from the Singapore Minister for Finance1. Temasek today has grown and branched across the globe, committed to its role as a generational investor, doing things today always with tomorrow in mind.

The Founding of Temasek

Three years after an unexpected independence in 1965, Britain announced it would accelerate the withdrawal of their armed forces from Singapore, to complete by 1971. This would dent Singapore’s economy, with a commensurate impact on the workforce, as a fifth of economic activity was attributed to the British forces and its industries.

Retraining soon followed apace to prepare the working population for the new jobs being created through massive industrialisation and investment promotion. British naval military dockyards and electronic workshops were converted and transformed into commercial start-ups and civilian businesses. The amalgamation of these efforts saw Singapore deliver a robust 12% economic growth in 1971, averting a potential economic disaster.

In 1972, Dr Goh Keng Swee, the first Finance Minister of Singapore (1959-1965, 1967-1970), who was then Minister for Defence, said:

“One of the tragic illusions that many countries of the Third World entertain is the notion that politicians and civil servants can successfully perform entrepreneurial functions. It is curious that, in the face of overwhelming evidence to the contrary, the belief persists.”

Having converted the military and naval bases left behind by the British forces to commercial use, and then finding itself the owner of a variety of these new businesses, the Government felt that it was necessary to separate governance from business management. This stemmed from the principle that it was not the business of government to operate the businesses it owned. At Temasek’s 40th anniversary in 2014, then President of Singapore, Dr Tony Tan Keng Yam, noted in his address:

“It was clearly not the business of government to run such enterprises, and so Temasek was set up to take over and own some 35 companies and miscellaneous investments”.

It was this principle that led to the establishment of Temasek to own and manage the assets previously held by the Singapore Government. The objective of a commercial investment company, owning and managing these assets, was to allow the government to focus on its core role of policymaking and regulations. Further, Temasek was designated a Fifth Schedule Entity2 with the constitutional responsibility to safeguard its past reserves, underscoring its role as a steward. The creation of Temasek therefore served to separate the regulatory and policymaking function of the Government from its role as a shareholder of commercial entities.  

Defining Temasek

Defining Temasek by comparing to others is not easy; there are no others that have the same breadth of Temasek’s activities, even today.

While the Government is the sole equity shareholder of Temasek, Temasek owns its assets outright as a commercial investment company, governed by the Singapore Companies Act, rather than being a fund manager for the Government.

The objective behind Temasek’s establishment was to distance the Government, with its role as policymaker, from its role as shareholder.

S R Nathan
Former President of Singapore (1999-2011)
Speech at Temasek’s 30th Anniversary Dinner, 2 November 2004

Temasek declares dividends annually to its shareholder. Despite being an exempt private company3, Temasek has voluntarily published its annual financial and performance report, the Temasek Review, since 2004. And Temasek pays commercial taxes, just like any other company, in Singapore and anywhere else in the world they fall due.

As a commercial company, Temasek is governed by an independent board, the majority of whom are non-executive and independent private sector business leaders.  

The evolution of Temasek towards full responsibility for the appointment and renewal of Board and management personnel was articulated by former Temasek Chairman Mr S Dhanabalan (Chairman of Temasek Holdings, 1996-2013), at Temasek’s 39th anniversary dinner, where he shared:

“Entrusting of the board and management to conduct business and to plan and execute succession without political interference makes us unique in the community of state-owned enterprises.”

Speaking at Temasek’s 40th anniversary dinner a year later, then President of Singapore, Dr Tony Tan Keng Yam, further remarked that it was this clear distinction of role that allowed Singapore firms to be “free of political patronage and compete on level playing field”.

The relationship between Temasek and its sole shareholder, the Minister for Finance, is similar to the relationship between Temasek and its portfolio companies. Neither the President nor the Government is involved in Temasek’s investment or other business and corporate decisions, except in relation to the President’s role in the protection of Temasek’s reserves. Similarly, Temasek does not direct the business decisions and operations of its portfolio companies. Instead, Temasek expects the boards and management of these companies to take responsibility and accountability for their actions and activities. For instance, Singapore Airlines (SIA) makes independent decisions on the selection of its aircraft and routes based on commercial considerations, without any direction from Temasek. As former Temasek Chairman Mr S Dhanabalan shared back in 2010, “When Singtel wants to buy the second largest telecoms company, they did not consult Temasek. When SIA bought billions of dollars of planes, we only read about this in the newspaper.”

Over the years, successive Finance Ministers, from Mr Hon Sui Sen (Finance Minister 1970-1983) to current Finance Minister Mr Heng Swee Keat, have also publicly reaffirmed that Temasek is expected to be run with commercial discipline. During an interview at the St Gallen Symposium in 2019, Mr Heng Swee Keat expressed that, as Finance Minister, he had never interfered with the investment decisions of Temasek and GIC. He added that according to the Constitution, the Finance Minister is responsible to Parliament for the performance of these firms, and he in turn holds these firms accountable.

This same perspective is shared in Mr Heng’s responses to various parliamentary questions. For example, in a written response to a parliamentary question in 2016, Mr Heng shared:

“The individual investments of GIC and Temasek are the responsibility of their respective management teams, while the Government monitors the performance of their overall portfolio. GIC and Temasek operate on a purely commercial basis in order to maximise long term risk-adjusted returns, and the individual investment decisions are fully independent of any Government interference or influence. This is an important governance principle that we seek to maintain.”

In his address at Temasek’s 39th anniversary dinner in 2013, then Deputy Prime Minister of Singapore and Minister for Finance, Mr Tharman Shanmugaratnam, explained:

“On its part, the Government’s approach is to ensure that people of sound character and judgment are appointed to the [Temasek] Board, to guide Temasek’s management and its strategies… This alignment in our thinking on the governance of Temasek remains an important advantage for the future. The Government holds the Board accountable for Temasek’s performance over time. Temasek has the flexibility to seize opportunities when they arise, and to take calculated risks aimed at growing the value of its portfolio over the long term.”

We are careful not to have any role or influence in Temasek’s investment decisions. That has been the right approach for Temasek, which makes commercial assessments without having to second guess whether the Government would agree to its decisions.

Tharman Shanmugaratnam
Former Deputy Prime Minister of Singapore (2011-2019)
Former Finance Minister (2007-2015)
Speech at Temasek’s 39th Anniversary Dinner, 6 August 2013

Over the years, Temasek has set its priorities with oversight from the Temasek Board, and independent of government direction. Its portfolio was shaped, and reshaped, alongside the risks and opportunities that present from time to time, and the longer term trends that were developing globally.

Our shareholder does not direct our investment, divestment or other business decisions. That freedom from shareholder or political interference is something we guard, but we don’t take for granted.

Lim Boon Heng
Chairman, Temasek
Speech at the 4th Annual Sovereign Wealth Fund Conference, 5 December 2013

Opportunities delivering good returns were sought, expanding Temasek’s presence from Singapore into Asia, Europe and the US. The rigour of commercial discipline was applied to those investments that were not performing; some were closed, others were sold as part of a wider industry consolidation.

Temasek as a generational investor

Beyond its role as an active investor, Temasek is a forward looking institution, and a trusted steward. Temasek invests for a better, smarter and more sustainable world, focused on transforming economies, growing middle income populations, deepening comparative advantages and emerging champions.

As Temasek invests for the long term, sustainability is at its core. Environmental, Social and Governance considerations are incorporated into investment decision-making and management, and the firm has announced ambitious carbon reduction targets to align the performance of its portfolio to wider measures to address climate change. Temasek achieved carbon neutrality in 2020, with further goals of portfolio net carbon emissions being brought down to 50% of 2010 levels by 2030, and eventually to net zero by 2050. To this end, Temasek is an official supporter of the recommendations of the Task Force on Climate-related Financial Disclosures, to underscore the importance of understanding climate risks and opportunities.

Temasek seeks to foster partnerships and seed endowments to uplift lives, build resilience, and foster best practices in sustainability and governance by enabling people and communities, to create a better tomorrow for current and future generations. Temasek Trust was established in 2007, to oversee the financial management and distribution of endowments and gifts from Temasek, via the non-profit philanthropic Temasek Foundation. This structure is important, to separate the responsibility for the financial oversight of gifts from Temasek and others, from the delivery and execution of programmes, as both functions require different skillsets.

We invest not just for the next three or 10 years and not even for the present generation. Instead, we constantly challenge ourselves to shape and re-shape our portfolio to deliver for future generations.

Ho Ching
CEO, Temasek Holdings
Luncheon Remarks at Stewardship Asia 2018 Roundtable, 4 June 2018

Temasek was born with tomorrow clearly in the minds of its founding fathers. The core reasoning was delivering a better world through its investments, safeguarding its reputation and ethos of good governance, and building upon the inheritance for future generations. These principles remain as relevant today as they did in the early 1970s, and are manifested in Temasek’s Charter, stating its three core functions: an active investor and shareholder; a forward looking institution; and a trusted steward.

As a constant reminder of its mission, these Charter roles keep Temasek rooted to its ethos of doing well, doing right, and doing good.

 

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1 Under the Singapore Minister for Finance (Incorporation) Act (Chapter 183), the Minister for Finance is a body corporate.

2 Fifth Schedule entities under the Singapore Constitution include GIC Private Limited, which manages the reserves of the Singapore Government; the CPF Board; the Monetary Authority of Singapore; Housing and Development Board; and Jurong Town Corporation.

3 An Exempt Private Company (EPC) is one which has a maximum of 20 shareholders, where none of the shareholders can be corporations. An EPC can also be a company which is wholly owned by the Government, in which the Minister has gazetted as being an EPC.

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