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Nicholas Gordon

Temasek Holdings’ CEO on why the fund has shifted from 80% public equities to just 47%—and thinks private markets are where you get the biggest returns

(Credit: Ore Huiying—Getty Images)

Good morning. Nicholas Gordon here with a guest essay from Hong Kong.

Sovereign wealth funds can seem like relatively sleepy affairs: managing giant sums of money, but largely passive in their investment approach.

Temasek Holdings—the Singaporean state-owned investment company with a portfolio worth $286 billion—isn’t like that. The company takes a more active approach to investing than its peers, as CEO Dilhan Pillay Sandrasegara told a Fortune audience of executives last week. He was speaking in Singapore, joining Fortune’s Clay Chandler and several other executives for a private dinner ahead of the Fortune Global Forum this November. 

“We’re not quite passive asset managers, where we just sit back and wait to see whether the stock price goes up,” he said. 

It was an insight into what’s driving Temasek as it continues to evolve from its inception in 1974 as a holding company for Singapore’s state companies, to the startup-backing investment giant it is today. 

Thirteen years ago, public equities and other liquid assets made up the vast majority—about 80%—of Temasek’s holdings. Now, that share is just 47%, with unlisted equities making up the remaining 53%. The private markets are where you could get some of “the biggest returns in the long run,” Pillay said last week. “Returns on private investments outstrip the returns in public investments over a longer timeframe,” as well as being less volatile, he said.

Of course, the danger of investing in startups is that they can blow up, and blow up badly. Two Temasek-backed startups flamed out last year. The first: E-commerce platform Zilingo, which abruptly suspended its CEO in March 2022 after the board accused her of financial irregularities. The second: the now-infamous–and bankrupt–crypto exchange FTX. 

Temasek had a difficult 2022 overall, reporting a negative 5% one-year return to shareholders for the fiscal year ending March 31—the investment company’s worst results since 2016. Still, it’s a decent performance compared to the markets: the S&P 500 fell by 10% over the same period. 

Temasek also turned to the “developed world.” China made up 26% of Temasek’s portfolio back in 2011, compared to 6% from the Americas and 5% from EMEA. Since then, the company has ramped up its investments in the U.S. and Europe where, together, they now outnumber Temasek’s investments in China: 33% in the Americas and EMEA, compared to 22% in China. (Singapore is still the largest home of Temasek’s investments, at 28% in 2023).

Last week, Pillay suggested Temasek’s shift was due to a more innovation-friendly economy and low interest rates, as well as the U.S. and Europe’s greater strength in life sciences.

But investing in China is also a tough bet right now, after years of COVID controls, a regulatory crackdown on the private sector, and a sluggish economic recovery. 

Then add geopolitics. The U.S. wants to stem the flow of capital into China, particularly towards strategic tech like artificial intelligence and quantum computing. Some U.S. investors can already see troubled waters ahead, as shown by Sequoia Capital’s decision to split from its successful and lucrative Chinese fund. 

It may just be too risky for a Singaporean-government-owned investment vehicle to run afoul of Washington by investing in China. Both Temasek and its sister sovereign wealth fund GIC have publicly talked about shifting their China investments thanks to geopolitics and possible U.S. controls. 

Temasek “won’t invest in areas that are in the crosshairs of U.S.-China tensions,” Rohit Sipahimalani, the company’s chief investment officer, said at the company’s annual briefing earlier this year. 

Pillay gave a warning to investors facing the rise of “de-risking” from China: Be prepared for a “more expensive” world. 

“I don’t think the word ‘resilience’ and ‘security’ is ever associated with low costs,” he said.

See you tomorrow,

Nicholas Gordon
Twitter: @nickrigordon
Email: nicholas.gordon@fortune.com
Submit a deal for the Term Sheet newsletter here.

Jackson Fordyce curated the deals section of today’s newsletter.

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