By Nick Hedley
Temasek says unlisted assets now comprise more than half of its portfolio as the Singaporean state-owned investment firm prepares for a “mild” recession in the U.S. and other developed economies.
For the year to March 31, Temasek reported total shareholder returns of 5.8% as its net portfolio value increased to S$403 billion (US$287 billion). However, this reporting period came before a sharp decline in asset valuations as Russia’s war in Ukraine began to weigh on sentiment.
Temasek’s annual review shows that unlisted assets now comprise 52% of its portfolio – a substantial increase from 27% a decade ago. The largest allocations are towards Singaporean companies, including real estate developer Mapletree, energy provider SP Group, and port operator PSA, as well as startups, the group’s asset management units, and private equity and credit funds.
“Our portfolio remains liquid, even as our holdings in unlisted assets have grown steadily over the years,” Temasek said.
Over the past decade, Temasek’s unlisted portfolio has outperformed, with annual returns of more than 10%. The group’s total shareholder returns over the same period were a more modest 7%.
Temasek said nearly two-thirds of its assets are in Asia, with Singapore and China being its largest investment markets. However, it has increased its allocations to the Americas and to Europe, the Middle East and Africa (EMEA).
Overall, it has raised its exposure towards developed economies, which now account for 65% of its portfolio, from 55% in 2011.
Recent investments in North America include Brooks Automation, cybersecurity platform Orca, and an increased stake in Pivot Bio, an agritech company.
In Europe, Temasek recently invested in hydrogen logistics group Hydrogenious and Oxford Nanopore Technologies, a U.K.-based biotech company.
Meanwhile, the group warned of a difficult period ahead.
The global economy “is in a fragile state,” it said. “Against the backdrop of an increasingly fractious geopolitical environment and a looming climate crisis, economies are now more vulnerable, with key developed markets potentially facing a risk of recession.”
But while a recession in the U.S. is growing more likely, it would probably be a “relatively mild” one thanks to healthy private sector balance sheets.
Elsewhere, Temasek thinks China will likely struggle to achieve its 2022 growth target of 5.5%, while in Europe, a “meaningful slowdown” is expected in the second half of the year due to the spill-over effects from the war in Ukraine.
“With inflationary pressures exacerbated by rising energy costs, the European Central Bank is likely to normalize monetary policy and exit negative rates by the end of this quarter,” Temasek said. “Increases in interest rates in a slowing growth environment could lead to a recession, which would be aggravated if a full Russian gas cut off occurs.”
Singapore’s economy could also grow slower than previous forecasts suggested due to the gloomier global outlook.
Rohit Sipahimalani, Temasek’s chief investment officer, said: “Taking into account the reasonable likelihood of a recession in developed markets over the next year, we maintain a cautious investment stance while staying focused on constructing a resilient portfolio underpinned by the structural trends we have identified.”
The group’s chairman, Lim Boon Heng, said: “Our world today is immensely complex. The challenges faced by governments, businesses and society have never been so multi-dimensional or far reaching.”