Amid dismal 2020 for investors, state investor Temasek places bets on long-term trends accelerated by Covid-19

• State investor sets sights on longer horizon of investment opportunities with longer gestation periods
• Opportunities include those relating to food, water, waste, energy, materials, clean transportation and urban development
• Its 2020 financial year was a net investment year, a reversal from 2019
• Temasek wants to reduce its carbon emissions to zero across its portfolio by 2050

SINGAPORE — It may be a negative and uncertain year for investors, but state investment firm Temasek Holdings still sees opportunity in trends accelerated by the global Covid-19 crisis, the firm’s executives said.

Temasek released its 2020 annual report on Tuesday (Sept 8) and its net portfolio value fell to S$306 billion in 2020 from S$313 billion in 2019.

Its one-year total shareholder returns shrank by 2.28 per cent this year, affirming the company’s downbeat projections in July.

Despite this, Temasek recorded a net investment year in 2020, a reversal from its net divestment year in 2019.

In its financial year from March 2019 to March 2020, it made investments worth S$32 billion and divestments of S$26 billion.

Mr Dilhan Pillay Sandrasegara, chief executive officer of Temasek International, said that the firm is adopting a new element of strategic development and identifying areas of future growth that are good to invest in, even at an early stage. Temasek International is the wholly owned management and investment arm of Temasek Holdings.

Mr Pillay said: “We should start investing ahead right now for things that might have a longer gestation... they are worth looking at not just as current portfolio companies." 

At the same time, on the sustainability front, Temasek is also committed to an “ambitious target” of having net zero emissions by 2050 across its portfolio.

The firm was carbon-neutral in 2020, though its net carbon emissions more than doubled from 14 million tonnes of emissions in 2010 to 29 million tonnes in 2020.

Responding to a reporter’s question that Temasek’s focus on environmental sustainability might have restricted its investment opportunities, Mr Pillay begged to differ.

“I don’t believe at all that the universe for investments is going to shrink. In fact, it’s going to enlarge. Why? Because of new sustainable solutions that are coming to the market.”

These opportunities span the gamut, encompassing food, water, waste, energy, materials, clean transportation and urban development. Sustainable solutions and ideas within these fields could be embraced in future and become disruptive forces, he said.

As of March 31 this year, 29 per cent of Temasek’s exposure is in China, up from 26 per cent in both 2018 and 2019.

This means that Temasek’s assets in China has this year overtaken Singapore, where 24 per cent of its underlying assets are now. This is a reflection of the way that Temasek’s Singapore-based companies are heading overseas to a broader market.

The financial services sector makes up the largest proportion — 23 per cent — of Temasek’s assets, followed by telecommunications, media and technology (21 per cent), consumer and real estate (17 per cent), and transportation and industrials (16 per cent).

Life sciences and agri-businesses have also steadily become a larger part of Temasek’s portfolio, growing from 6 per cent of the group’s portfolio in 2018 to 8 per cent in 2020.

One example in this sector in the past year was its investments in Singapore-based solar energy firm Sunseap, which is responsible for many of the rooftop solar panels installed atop Housing and Development Board blocks.

Temasek also increased its exposure in sustainably produced food, investing in companies such as Calysta, Impossible Foods, Perfect Day, Califia Farms and Memphis Meats.

Mr Pillay said: “It’s almost a necessity for investors like us with a long-term sustainable return orientation to be engaged with sustainability at the core of our investment decisions.”

E-COMMERCE AND DIGITAL PAYMENTS

Ms Png Chin Yee, Temasek International's deputy chief financial officer, said that Temasek had also taken the opportunity during the crisis to deepen its exposure in e-commerce and digital payments, such as in payment stocks for Visa, MasterCard and PayPal.

These are ostensibly sectors where growth has been accelerated by Covid-19, she said, noting how people are doing more online shopping during the pandemic.

“What we would like to do is to really take a look at the trends that we have identified to see what’s relevant, what’s accelerated and make bigger bets (for) those that we think are going to benefit in, and coming out from, this environment,” Ms Png said.

The sectors hardest-hit by Covid-19 — aviation and tourism — represent only 5 per cent of Temasek’s portfolio, including Singapore Airlines (SIA), Mr Pillay said. SIA is “managing its capital as best as it can”, with Temasek committed to supporting S$15 billion of fundraising for the Covid-stricken group of airlines, he added.

“We are being cautious and therefore being selective in how we deploy our capital. Of course, a significant part of capital has also now been allocated towards our stalwart companies like SIA,” Mr Pillay said.

It does not mean that there are no opportunities to be found in these sectors though.

“We will have to watch what the trends are going to be like, and whether there are business models that will emerge that we shoud go into and support (in the aviation and tourism sectors),” he said.