Brief Note on Annual Reports of Temesek Holdings: Is Everything Really True?
The Singaporean sovereign wealth fund Temasek Holdings states in its 2014 annual report that it has earned since inception an average annualized rate of return of 16%. This number, however, claims such a high level of sustained returns as to warrant closer examination. We conclude, based upon a review of all public financial and economic data. That it strains credibility that Temasek earned a 16% rate of return on its holdings since inception. However, even if Temasek was able to beat all other major stock market indexes by twice the average annualized return. This would then imply that the other Singaporean sovereign wealth fund incurred large losses.
Government Investment Corporation of Singapore (GIC)
If Temasek began operation in 1974 with approximately $354 million SGD, similar to the accumulated budget surplus between 1971 to 1973 of $337 million SGD, as it states on its website. Then all other operational surpluses and incurred liabilities should have been invested. Given the publicly declared amount of assets under management. This would imply if we further accept the validity of return claims from the other sovereign wealth fund the Government Investment Corporation of Singapore (GIC) of 7% in USD terms. A large asset gap exists even after accounting for debt and currency losses. Based upon conservative estimates, there is a gap of approximately $835 billion SGD between their declared financial assets and the value they should have if all other claims are true.
This implies that their publically declared $834 billion SGD in financial assets earned only an annualized 0.1% since 1974 based upon $822 billion SGD in free cash flow between operational surpluses and increased indebtedness.
Though Singapore is frequently lauded as transparent, in reality its public data is relatively opaque with little detail provided while appearing open. It is therefore too important to provide some caveats about the data and how it was obtain. First, all data begins with official Singaporean data. For instance, analysis of Temasek financials and returns begins with the official data provided in Temasek annual reports. Public finance data is taken, due to the length of the time series, from the International Monetary Fund (IMF) dataset International Financial Statistics and its Government Finance Statistics.
It should be emphasize that all data provided to the IMF, originates with and is provide by the Singaporean government. Unless noted otherwise, all data comes directly or indirectly from official Singaporean sources. Second, where direct numbers could not be obtained, indirect sources were used to estimate the number in question. For instance, Temasek does not detail the number of shares it holds of companies. However, it provides the percentage of ownership in its portfolio companies. This allows us to estimate the individual value of each holding and construct a portfolio value and weighting for Temasek.
In another instance, we use the known total portfolio value of Temasek and the known value of listed stocks provided by Temasek to estimate the value of unlisted holdings. While it is not exact, the indirect numbers allow us impute many numbers not provided by official sources. Third, given uncertainty, the numbers contain a small degree of uncertainty. For instance in a hypothetical scenario, Temasek declares that it own 5% of a company and the firm has a market capitalization of $10 billion USD. That would imply, and we calculate it as, Temsek owning a $500 million USD asset. Given that we do not know whether it is 5.44% or 4.51%, this reduces the overall accuracy of the data when estimating. Though this reduces the exact accuracy of a specific holding, it does not in change the analysis our conclusions implied.
Fourth, it is necessary at times when estimating numbers to impute their value based upon the value of other numbers. When this is necessary, this is accomplish using simple algebra. For instance, while we can calculate the value of Temasek holdings listed in their annual report. They do not provide information on their unlisted portfolio. However, as we can reasonably estimate their total portfolio value and their listed portfolio value. We can algebraically calculate the value of their unlisted portfolio.
Fifth, in a few instances, it is necessary to make assumptions to reach conclusions. Where assumptions are made, it will be clearly noted and detail both why certain assumptions are made and what might change given different assumptions.
When assumptions need to be made they will be as realistic as possible and explain in detail. Given the refusal by Singapore and Temasek to provide more detailed data this is an unavoidable necessity. Given the nature of the subject, we have attempted to be extremely prudent and conservative.
Understand Temasek Portfolio
To better understand the Temasek portfolio, a database is create from their annual reports between 2005 and 2014 during which time they provide key data, with all major holdings report. Building upon the base data provided such as percentage shareholding, total shareholder return (TSR), and market capitalization, additional data was created to better understand the Temasek portfolio and underlying returns. For instance, we created estimates relying on the base Temasek data to value specific asset, individual portfolio weights, TSR contribution to total portfolio, Singaporean and Foreign portfolios, and the value of unlisted holdings.
A couple of brief points need to be noted. First, this data come directly from Temasek reports and are all straight forward. For instance, if the value of an individual holding is $1 billion USD and the value of the total portfolio is $10 billion USD. Then the portfolio weighting for that specific holding is 10%. Second, creating additional data and variables is use to obtain an increasing level of detail about Temasek holdings. The additional detail allows us to calculate portfolio concentrations and sort by a variety of factors such as foreign and Singaporean returns among other factors.
Creating additional variables out of the base data provided by Temasek in their annual reports. Provide interesting insight into the risks and data discrepancies. Temasek holds a relatively concentrated portfolio. Generally speaking, the top 20% of holdings are roughly equal to about two-thirds of total listed assets. At the end of fiscal year 2013, the eight largest listed holdings of Temasek out of forty listed holdings comprised 64.2% of their listed portfolio. This approximate pattern of concentration holds if we break it down further. The top 20% of Singaporean listed stocks comprise 56% of the Singaporean portfolio with the same number comprising 72% of the foreign portfolio.
As an example, SingTel comprised nearly 20% of the total Temasek listed portfolio and 30% of the Singaporean portfolio. At the end of fiscal year 2014, China Construction Bank, ICBC, and Bank of China comprised 35% of the foreign portfolio. The lowest Chinese concentration since data is available. It is worth noting that this general pattern of high concentration holds across the time and subcategories for which we have data. One interesting note, we arrive at a different portfolio concentration than Temasek for their Singaporean holdings. According to our calculations, at a minimum, 49% of all Temasek assets are held in Singaporean firms and 66% of declare holdings.
This varies substantially from their geographic exposure but aligns closer to their currency distribution. Our results appears to differ based upon where subsidiary firms gain their revenue, though as the highlighted factor, the geographic exposure appears to present a misleading picture of portfolio holdings. Breaking down the data also appears to reveal significant irregularities. Reconstructing the listed portfolio provides us data on approximately 80% of the Temasek portfolio. Though typically closer to 75%in recent years.This leaves the remaining 20-25% as undeclared assets. Though Temasek does not specifically state what these assets are, induction allows insight into some important details.
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