Friday, March 09, 2007

Deal with Shin Corp Issue Openly and Transparently

[This letter was published in ST. The original unedited letter which I wrote follows below. Laurence Lien is from the Ministry of Finance while Myrna Thomas is from Temasek Holdings.]

I refer to the replies of Laurence Lien and Myrna Thomas (‘Temasek accountable to Govt on portfolio basis’ and ‘Temasek operates like any investment firm’; ST, March 8) to Patrick Tan (Billions at stake, so Shin saga a national concern, ST, March 3).

Mr. Lien rightly explains that we should evaluate Temasek’s performance on the basis of its portfolio returns as a whole. However, he fails to acknowledge that well-constructed investment portfolios are made up of prudently made individual investment decisions. While an investment manager is ultimately concerned with his entire portfolio’s performance, that in no way exonerates him from performing due diligence on each individual investment, nor does it excuse him from making each individual investment with reasonable care.

While I am not claiming that Temasek has been negligent, the Shin Corp Saga nevertheless has valuable lessons to teach investors. Mr. Lien should not divert attention from the issue of the individual investment by referring to Temasek’s portfolio. Instead, due effort should be made into reviewing what may have gone wrong in order to prevent such incidents from happening in the future.

Myrna Thomas, on the other hand, claims that Temasek acts like any other commercial investment firm. I, however, beg to disagree.

As Mr. Lien points out, Temasek is accountable to the Government of Singapore, which is, in turn, accountable to Singapore as a nation. This introduces political overtones into every investment that Temasek makes, whether such overtones are rightly or wrongly perceived. Whether Temasek likes it or not, it has to deal with the potential for its national ownership to spark political reactions in other countries.

Because Temasek is owned by the Government of Singapore, the political risks that Temasek faces when making investments are real, tangible and heightened in comparison to privately owned investment firms. Indeed, these risks should be magnified when one considers that even privately owned companies sometimes run into political reactions when making transnational acquisitions. Temasek hence cannot be said to “operate like any investment firm.”

When one is managing a portfolio of several billion dollars, small percentage points make a difference. This is even more so when these small percentage points involve a couple of billion dollars which can make a difference to a nation’s budget.

Let us not sidestep the issue but deal with it openly and transparently so that such incidents can be avoided in the future.

Temasek accountable to Govt on portfolio basis

MR PATRICK Tan Siong Kuan ('Billions at stake, so Shin saga a national concern'; ST, March 3) was understandably concerned that if Temasek Holdings' investment in Shin Corp made losses, Singapore would lose national reserves. But this is not the right way to measure Temasek's performance.

Temasek invests in a broad range of assets to diversify risk and achieve good returns on the portfolio as a whole. It accepts that some investments will do well while others may fail. What is important is that the portfolio as a whole delivers creditable and sustained returns. This is the approach taken by many other reputable, long-term investors.

The Government holds Temasek accountable for achieving good long-term performance on an overall portfolio basis, rather than on individual investments each year. If Temasek were to be assessed on each individual investment, it would adopt an overly conservative investment strategy and ultimately achieve much lower overall returns.

This approach has yielded good results. As of March 2006, Temasek has delivered a compounded annual return of 18 per cent in terms of total shareholder returns by market value since inception, or 28 per cent per annum in the last three years.

For the financial year 2006 ending March 2007, despite the Shin investment Temasek is again expected to do well.

Laurence Lien
Governance and Investment
Ministry of Finance

Temasek operates like any investment firm

WE APPRECIATE Mr Patrick Tan Siong Kuan's concern over Temasek Holdings' investment in Shin Corp ('Billions at stake, so Shin saga a national concern'; ST, March 3).

Temasek operates with commercial discretion and flexibility as a commercial investment company. Like other investment firms, our investment decisions are based on commercial considerations within the appropriate risk-adjusted return framework for the different industries and markets.

Our investment in Shin Corp in Thailand was no different. We had a positive assessment of the outlook for Thailand, and completed the investment in accordance with market norms and best practices in international mergers and acquisitions. We continue to monitor the political situation and business environment in Thailand and will take the appropriate decisions as an investment firm.

Temasek is accountable to our shareholder in terms of our overall returns. We have maintained our Triple A credit rating by Standard & Poors and Moody's. This means we are financially sound and have sufficient assets and liquidity to support our obligations and investments.

It remains our objective to continue to deliver sustainable long-term returns.

Myrna Thomas (Ms)
Managing Director
Corporate Affairs
Temasek Holdings

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