Unpacking the GIC Result: Why All That Effort Gets Only 3.4%
3 July, 2019
How Gupta Turned DBS into the Bank of the Future
10 July, 2019Euromoney, July 9 2019
Divestments at the Singaporean sovereign wealth vehicle tell a story of a tough investment environment.
The most important number in today’s Temasek review for the Singaporean sovereign wealth vehicle was this: it divested S$28 billion of assets, S$4 billion more than it invested.
This is what a dynamic equity-based portfolio looks like in the middle of a trade war. Temasek faces a challenging environment, given its mandate: it can’t retreat to cautious debt holdings or alternatives, as GIC can, but has to stay either in listed companies or pre-listing positions.
It handled the environment deftly enough. In the year to March 31 it delivered a total shareholder return up 1.49% year-on-year, with the portfolio climbing S$5 billion to S$313 billion net; it is telling that the fund gained S$9 billion in dividends through the year, a contribution that has rarely been more crucial.
Divestments were often not in heavyweights but in companies key to the fund’s life science and tech investment themes: it moved out of Gilead Sciences, Cargill Tropical Palm and Klabin, while trimming its stakes in Alibaba, CenturyLink and IHS Markit. (The Bank Danamon divestment in Indonesia will feature in next year’s numbers.)
New investments included US digital solutions provider UST Global, Indian online ride-hailing company OlaCabs and Brazilian healthcare e-commerce company Bionexo.
A closer look at the portfolio shows how the fund has tried to tilt in challenging times. The biggest shift is that the percentage of listed large blocs in which the fund holds a larger than 50% share dropped from 15% to 12%. Unlisted assets rose from 39% to 42% of the portfolio, and this is now comfortably the largest segment of the Temasek potfolio.
Geographically, the fund has sought growth and security in North America, rising from 13 to 15% of the portfolio, while slimming the proportion held in Singapore and ex-China Asia (China, perhaps surprisingly given the macro environment, has stayed steady at 26% of the portfolio, level with Singapore as the biggest geographical position). Europe is modestly up, Australia and New Zealand modestly down; the 25% now held in North America and Europe is an unusually high position.
Positions in life sciences, agribusinesses, consumer and real estate grew as a percentage of the portfolio, while financial services and TMT – still the biggest areas of investment – declined.
Chairman Lim Boon Heng tried to shift the focus to sustainability and climate change; Temasek International CEO Dilhan Pillay reiterated the thematic tile towards transformational technologies, sustainable living, longer lifespans and changing consumption patterns, saying “we will increasingly reshape our portfolio in line with these trends”.
The message here was that Temasek tries to invest for a far longer time horizon than the one expressed by a moribund year and awkward geopolitics. It talks about longer lifespans, rising affluence, connectivity, sustainable living: the big game of generational investment trends. When Temasek highlights its investments it draws the attention towards Neoen, a solar company, or Pivot Bio, a synthetic biology company, or BeiGene, which develops cancer therapies in China, rather than blue chip stalwarts like DBS and China Construction Bank, whose dividends anchored returns last year.
For what it’s worth, Png Chin Yee, the senior managing director for portfolio strategy and risk, expects macro problems to continue to dampen business confidence and investment, but also that policymakers will “be primed for dovish policies that could cushion any substantive pressure on growth.” A resulting low interest environment could lower return expectations for the longer term.
But that’s not really what the management wants us to focus on. The message it’s trying to give is: times are tough, but we’ve got this, because we know what’s coming a generation ahead and we’re positioned for it now. In the meantime, though, it would be bold to expect much of a bounce in the near term.
