Temasek’s Investment Model

I had the privilege to visit Temasek, the sovereign wealth fund. As background, Temasek is roughly a $240-billion-dollar sovereign wealth fund based in Singapore. In the world of asset management, fund managers are required to at least match the performance of their benchmarks.

Given that Temasek has a significant portion of its assets in fixed income products like corporate bonds, it may be unfair to compare it to a traditional equity benchmark like the S&P500 as equity benchmarks consist of only stocks.

But, I can say that all fund managers should earn a positive return for their investors and/or clients. According to Temasek Investor Factsheet, Temasek lost money for its investors. In fact, Temasek had a one-year negative return of 9.02% and a 10-year return of 6%. At first glance, these numbers are subpar at best given that the secular bull market through the global led by the U.S. equity markets.

I got to hear from a Sloan alum about Temasek’s investment thesis and I was moved and became more understanding of the portfolio performance. Temasek isn’t your traditional sovereign wealth fund because Temasek isn’t interested in maximizing returns in the short run.

Temasek employs its model of “intergenerational investing”. Instead of taking the short term — up to 5 year — investing approach, Temasek takes a much longer approach by investing in companies for up to 30 years. Temasek takes a very passive approach to companies by just taking a minority stake in them. Essentially, Temasek does not try to influence management of companies. Temasek feels that it will only invest in companies with sound management and that sound management would know how to execute and manage their businesses better than investors.

Since Temasek has a long-term perspective on investment ideas, Temasek appears to have a lot of cash on its balance sheet. I even asked the Sloan alum about Temasek’s cash management strategy. I learned that Temasek won’t use cash just to invest. If Temasek doesn’t see any attractive investment opportunities, Temasek would proudly just sit on cash.

Although Temasek hasn’t received strong returns in quite some time, I admire its unique investment approach because Temasek invests in the future. I was blown away how beautiful Singapore was. Temasek had a fairly considerable hand in building Singapore. So, I can only acknowledge and respect Temasek’s investment model.

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