The Singaporean fund, which is owned by the government, is a highly successful concern that gave world markets a scare when it sold stakes in two Chinese banks last month, writes Frank Kane.
Temasek - a company that outdoes Buffett
For Mubadala and ADIA in Abu Dhabi, in Singapore read Temasek Holdings and GIC.
The island state, used by the UAE as a model for economic development, has its own government-owned investment groups, which have become a vital part of its financial and economic life.
Although the Government of Singapore Investment Corporation (GIC) is bigger, Temasek is arguably better known in the financial world.
Temasek (it derives from the old Javanese word for "sea town") caused a stir when it appeared to "call" the market in the Chinese financial sector, selling stakes in two of China's biggest banks - sending a shiver through world markets early last month.
The Singaporean fund, an investment company owned by the government, was the biggest foreign investor in the Chinese banking sector, with multibillion-dollar stakes in the Bank of China and China Construction Bank, but it sold down about US$3.6 billion (Dh13.2bn) of its total holding, for a tidy profit of about $1.2bn.
Nagi Hamiyeh, the managing director of Temasek's investment unit, says the sales were purely investment decisions, and pointed out that it retained substantial holdings in the Chinese financial sector. "We've still got $13bn in Bank of China."
But the market effect showed the increasing power of Temasek as a global investing force. The Singaporean company had won important political points with Beijing when it bought the stakes in 2009, just as cash-strapped western banks were offloading their interests in China. Just as with its Abu Dhabi counterparts - Mubadala Development, a strategic investment company owned by the Government, and the Abu Dhabi Investment Authority - Temasek is wary of the phrase "sovereign wealth fund" (SWF), and likes to call itself simply "a government-owned investment company".
In fact, its origins are very similar to the Abu Dhabi companies, if somewhat older.
Temasek's seed capital came from the grant of government-owned assets more than 30 years ago, mainly in airlines and telecommunications, rather than oil revenues, as in the UAE. The privatisation of the SingTel communications group in the 1990s also gave Temasek another injection of assets.
Temasek has adopted strictly commercial criteria as its basic business philosophy, and gets top marks on the transparency scales drawn up by investing institutions in their dealings with SWFs. It was a party to the Santiago Principles agreed between western institutions and global SWFs in 2009.
But the comparison Temasek likes to make, rather than the SWF league, is a more telling one: at its recent annual financial report presentation in Singapore, it showed a chart of its performance compared with Berkshire Hathaway, the company run by Warren Buffett, the legendary US investor dubbed the Sage of Omaha for the shrewdness of his financial dealings.
Over a 20-year period, Temasek outperformed Mr Buffett, with a total return of 15 per cent compared with his 13 per cent; over the past two years, the Singaporeans have raced away, with a 22 per cent return against Berkshire Hathaway's 9 per cent.
After Singapore, where Temasek holds 32 per cent of its assets, the investment policy is distinctly slanted towards emerging markets, and firmly anchored in Asia. Some 45 per cent is in Asian assets outside Singapore, with a large proportion in Malaysia. Only 20 per cent is in the West (including Australia and New Zealand).
Like many investors in the UAE, Temasek is becoming increasingly attracted by investment opportunities in Africa. "There are potential problems there, of course, like governance and lack of transparency, and we are cautious by nature, but things are improving, especially in South Africa, " says a Temasek executive.
Temasek has announced a new venture in partnership with South Africa's wealthy Oppenheimer family, setting up a $300 million fund to invest in African consumer and agricultural businesses.
The biggest chunk of Temasek's portfolio is invested in financial services, followed by transport, industrials, telecoms and life sciences.
"Real estate forms only a small part of the Temasek portfolio,"says the executive. "We have equity stakes in real estate companies in Singapore and joint ventures with the Malaysian government, but property is not a big component."
The investment policy has been an undoubted financial success. Apart from a blip in crisis-gripped 2009, the portfolio value has risen in every one of the past eight years, and stood at S$193bn (Dh582bn) at the end of March.
Profits have also recovered quickly over the past 12 months, following two years of downturn in the aftermath of the financial crisis. In the year to March, net profits amounted to S$12.7bn, up from S$4.6bn a year earlier. Debts were reduced by nearly half in that period, to S$9.5bn.
Temasek executives say they come across their Abu Dhabi counterparts as competitors in the international investment circuit, and are aware of "strategic relationships" at the highest levels of Singapore-UAE relations.
One significant link is the role of Baroness Shriti Vadera, a former British government minister, as an adviser to Temasek. She also advised the Dubai Government at the most sensitive stages of the negotiations over Dubai World's restructuring.