Yahoo Finance Temasek Charts its T2030 Strategy: 5 Takeaways from the Investment Firm’s 2023 Annual Review
It has been a year since we covered Temasek Holdings 2022’s Annual Review where its portfolio hit an all-time high.
Fast forward to today, and the investment firm has released its 2023 Annual Review.
Its portfolio value stood at S$382 billion as of 31 March 2023, dipping by 5.2% from the S$403 billion a year ago.
The firm attributed persistent inflation along with geopolitical tensions and the Russia-Ukraine war as some of the reasons for the fall in its portfolio value.
Temasek’s chairman, Lim Boon Heng, noted that 2022 counts as one of the most challenging years for markets in the last decade due to the combination of high interest rates and slower growth.
Here are five highlights from Temasek’s latest Annual Review.
1. Steady long-term performance
Temasek’s one-year total shareholder return (TSR) turned negative at -5.07% for fiscal 2023 (FY2023).
In contrast, FY2022 saw a TSR of +5.81% while FY2021’s TSR touched +24.53%, the highest since FY2010.
As Temasek invests for the long term, it is insightful to take a look at its TSR over longer periods.
Its three-year TSR came in at +7.74% while its 10-year TSR stood at +6%.
Over 20 years, Temasek’s TSR of 9% handily beat Singapore’s annualised core inflation of 1.8%.
Stretch the period to 40 years, and Temasek’s TSR becomes more impressive at 12%.
2. Portfolio composition
For FY2023, Temasek’s portfolio saw a 63% exposure to Asia, with 28% of its portfolio focused on Singapore.
The investment firm had steadily increased its Singapore exposure by S$42 billion over the past decade.
The portfolio has also seen the proportion of unlisted assets rise from 27% to 53% over the past 10 years.
The good news is that despite the negative TSR for FY2023, Temasek received S$11 billion of dividends, close to the all-time high of S$12 billion received in FY2020.
FY2023’s dividends also came in at the second-highest level since FY2006.
A total of S$31 billion was invested in FY2023, around half of the S$61 billion invested a year ago.
Divestments hit S$27 billion for FY2023, down from the S$37 billion divested in FY2022.
Temasek’s total investments over the past decade amounted to S$326 billion.
3. Challenges and opportunities
Temasek formulated its T2030 strategy back in 2019 as a scenario and strategic planning guide.
As part of this strategy, management identified six challenges and opportunities that will impact its investment decision-making process.
The first is elevated levels of inflation that have spiked up in recent years and remain high relative to the past decade.
Lower growth and the risk of stagflation (i.e. economic stagnation coupled with inflation) are also top of mind.
Geopolitical tensions are the second factor and include US-China tensions and the Russia-Ukraine conflict.
These events threaten to disrupt supply chains which will drive up business costs and result in protectionism.
The investment regulatory environment has also become far more complex in recent years as government scrutiny and investment restrictions increase.
Climate change and pollution present yet another challenge to economies and will have consequences for businesses as they strive to be more environmentally friendly.
The threat of cyber attacks is also heightened with cybercrime expected to grow by 15% per annum, costing the world US$10.5 trillion annually by 2025.
On the bright side, industry and workforce 4.0 represent opportunities as companies embrace positive change to transform their businesses to make them more efficient and productive.
4. Investments made
FY2023 saw Temasek allocate money to both its Singapore portfolio companies and make global direct investments.
The investment firm was involved in the merger of Keppel Offshore and Marine and Sembcorp Marine to form Seatrium (SGX: S51).
It also pumped money into SATS Ltd’s (SGX: S58) rights issue when it announced a rights issue to fund its acquisition of Worldwide Flight Services.
For foreign companies in the financial services sector, Temasek allocated money to global alternative asset managers Blackstone (NYSE: BX) and TPG Inc (NASDAQ: TPG).
In the technology and consumer industries, follow-up investments were made in Internet Brands, a US-based integrated online media and software services company, and Zomato (NSE: ZOMATO), an Indian food-delivery platform.
Investments were also made in Stripe, a payments platform, and Kaseya, a provider of unified IT management and security software.
5. Identifying three growth engines
Temasek relies on three growth engines to power its portfolio growth.
These are the investment engine, partnership engine, and development engine.
The investment engine makes up the bulk (86%) of Temasek’s portfolio and comprises Singapore portfolio companies with a consolidated revenue of around S$145 billion.
These businesses are stalwarts and help to deliver a sustainable return for the portfolio.
Partnership Engine makes up 10% of the portfolio and includes around S$79 billion of assets under management in firms such as 65 Equity Partners, Vertex Holdings, and ABC Impact.
Finally, the Development Engine takes up just 4% of the portfolio and focuses on cutting-edge innovations such as computing and cognition, deep tech, and sustainable energy solutions.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
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