Temasek and govt-linked companies outperform market: Study

SINGAPORE — While Temasek Holdings registered weak total shareholder returns in its last financial year, a study released by the National University of Singapore yesterday showed that good corporate governance and a clear business mandate have helped the state investor and government-linked companies (GLCs) to outperform the market in the longer term.

As seen in Temasek’s annual report released earlier this week, total shareholder return (TSR), its key measure of performance, shrunk to 1.5 per cent for the year ended March, down from 8.9 per cent in its previous fiscal year.

However, looking at the returns of the past decade, Temasek’s TSR appears to be more stable than MSCI returns, which is evidence that its focus is on long-run returns, showed the study released yesterday by the NUS Business School’s Centre for Governance, Institutions and Organisations (CGIO) and the Chartered Institute of Management Accountants.

Longer-term TSR for 20 years was 14 per cent last year, more than double the MSCI Singapore index return of 6 per cent. The market value of its portfolio also surged by 300 per cent between 1994 and 2013, the study showed.

The research, which was done before the release of Temasek Holdings’ results earlier this week, examined 23 GLCs and government-linked real estate investment trusts (GLREITs).

It also found that, between 2008 and last year, GLCs accounted for an average of 37 per cent of the stock market’s value of S$500 billion, while GLREITs made up 54 per cent of the REIT market value of S$35 million.

The research linked the better-than-average performance of GLCs to several drivers of good corporate governance, including the ability to operate with a clear business mandate and at arm’s length from politics, being listed on the stock exchange, the internationalisation of GLCs’ businesses, leadership continuity and the adoption of corporate governance best practices.

“In many countries, state ownership is known to detract from company performance due to issues such as political interference and rent seeking, or unfair advantages from political protection,” said Professor Steen Thomsen, co-author of the study and a member of CGIO’s Academic Advisory Council.

“In contrast, Temasek Holdings has previously stated that it acts like an active investor with long-term returns maximisation as an important motive in its investment decisions, and that the Government does not interfere in its business decisions. We believe that such a structure is particularly important,” he added.