SINGAPORE — Singapore investment company Temasek Holdings’ portfolio value has kept growing to a record high, though total shareholder returns have declined sharply in the last financial year, its latest annual review showed. 

The Singapore Government is the sole shareholder of Temasek Holdings, and the returns constitute the largest revenue component of Singapore’s annual Budget, in a category officially known as “Net Investment Returns Contribution”.

In the annual review, which was published on Tuesday (July 9), Temasek also underscored the importance of investing sustainably — describing climate change as “the most urgent challenge confronting humanity”.

In the financial year ending on March 2019, Temasek’s net portfolio value grew for the third straight year to S$313 billion, up by about 1.6 per cent from S$308 billion in 2018. However, the pace of growth was still markedly slower than the 12 per cent increase from 2017 to 2018.

The result comes amid a gloomy economic outlook and rising global uncertainties, fuelled by trade tensions between America and China, a possible hard Brexit hurting European economies, and rising risks of a technology war that could affect Temasek’s technology investments.

In a media statement, Temasek said it had “moderated its investment pace” since July last year as it “anticipated an increasingly challenging environment”.

Total shareholder return (TSR) came in at 1.49 per cent in Singapore dollar terms over the year in review, a sharp fall from the 12.2 per cent posted in the previous year. TSR measures the performance of the fund’s holdings by adding capital gains as well as dividends.

At a question and answer session on Tuesday, Temasek executives stressed that TSR was high when viewed over the longer term. Over a decade, TSR was 9 per cent. Since the inception of Temasek Holdings 45 years ago, the firm has recorded a compounded annualised return of 15 per cent.

Mr Dilhan Pillay Sandrasegara, chief executive officer of Temasek International, said that the shareholder — the Singapore Government — looks for long-term sustainable returns. This means there could be some years that overperform, and other years that underperform, he said.

Temasek International is the wholly owned management and investment arm of parent company Temasek Holdings.

Mr Sandrasegara said: “What we have been doing systematically over the last 10 years or so is to shift the portfolio in a way that resilience comes across… It is very important that we focus on that sort of strategy going forward, and that is really what our shareholder expects us to do.”

Temasek’s dividend income in the past financial year was at S$9 billion.

As risks have increased, divestments outpaced investments in the past year as the firm is taking “a more cautious approach”, said Ms Png Chin Yee, senior managing director of portfolio strategy and risk group. In the 2019 financial year, Temasek divested itself of S$28 billion and invested S$24 billion.

Ms Png said: “While the increasingly challenging global environment may dampen business confidence and investment, we expect policymakers to be primed for dovish policies that could cushion any substantive pressure on growth.”

If the low interest rate environment persists, this could lower expectations for returns in the longer term, she added.

Temasek International president and chief operating officer Chia Song Hwee said Temasek had deliberately tempered its investment pace over concerns of economic headwinds.

Mr Chia said: “In general, we manage our portfolio and liquidity for resilience, especially in anticipation of a more challenging outlook.”

SUSTAINABLE INVESTMENTS

Meanwhile, Temasek International will continue its journey of investing sustainably, as envisioned by former chairman Ho Ching, said Mr Sandrasegara. Ms Ho stepped down as Temasek International chairman in April. Ms Ho, the wife of Prime Minister Lee Hsien Loong continues as Temasek Holdings’ chief executive officer.

Temasek Holdings chairman Mr Lim Boon Heng said: “We are committed to do well, do right and do good, as an investor, institution and steward.”

He added: “Climate change is the most urgent challenge confronting humanity today. Let’s look at what’s happening around us, and think what it means for people, lives and livelihoods.”

This year's annual review featured heavily Temasek's recent investments that promote this thinking, such as Impossible Foods, a company that has developed plant-based substitutes for meat. This comes after Temasek set out its environmental, social and governance framework for the first time last month.

Among its divestments in the past year, Temasek had dropped Cargill Tropical Palm, a palm oil company, and Klabin, which is the largest paper producer, exporter and recycler in Brazil.

Mr John Vaske, Temasek head of Americas, said the framework set out how environmental, social and governance considerations weigh on Temasek’s investment decisions.

“This is very much aligned to our purpose of creating sustainable value over the long term,” he said.