Temasek annual profit doubles

The sovereign fund, which has received US antitrust approval to raise its stake in Merrill Lynch, has doubled its profits to S$18.2 billion. Though it predicts continued credit market fallout will dampen the economy, Temasek has indicated it will continue to do direct deals in financial services.

Temasek Holdings, one of two Singaporean sovereign wealth funds, registered an annual profit of S$18.2 billion ($12.8 billion; €8.8 billion) for the financial year ending March 2008, double that of last year. It said that the profits were realised based on the back of strong returns from existing portfolio companies and gains realised from the divestments of its assets.

Temasek, which is owned by Singapore's Ministry of Finance, is an active investor in the private equity asset class, and besides making direct private equity investments, has invested in a number of private equity funds managed by other parties.

Most recently, it is believed to have invested $1 billion in the $2.5 billion Hopu USD Master Fund, which makes investments in China, and is focused on opportunities arising from the restructuring of state-owned enterprises and the rapidly growing private sector in the country. The fund was established by Fang Fenglei, a Goldman executive, and Goldman Sachs is said to have committed $300 million to the fund as well.

Temasek, which released its annual results yesterday, said that the value of its portfolio increased from S$164 billion to S$185 billion, a 13 percent rise. However, part of the rise in portfolio size is attributable to a capital injection of S$10 billion by Singapore’s Ministry of Finance, which owns Temasek. Taking the capital injection into account, the total shareholder return by market value increased by a modest 7 percent.

Total investments for the year stood at S$32 billion as compared with S$16 billion in the preceding year. In what was a very active year for Temasek, its divestments amounted to S$17 billion. Temasek’s net investments outside of Asia, which stood at S$10 billion, exceeded net investments in Asia, which stood at S$5 billion, for the first time. However, this was primarily due to S$12 billion of divestments in Asia.

While Temasek recorded its highest ever profits in the last financial year, its chairman S Dhanabalan warned that opportunities may be limited in the coming months. 

“The fallout of the credit crisis will continue to dampen the global economy over the next 24 months, with sharply escalated oil and food prives beginning to test inflation expectations,” he said in Temasek's annual review. He added that Temasek is concerned with “the emerging risks of stagflation” as it “presents huge socio-political as well as economic risks in the next three to five years”.

A majority of Temasek's portfolio remains concentrated in the financial services sector. The sector accounts for forty percent of the firm's portfolio. Over the last year, Temasek invested $8.3 billion (€5.7 billion) in Merrill Lynch and $2 billion in Barclays. It also increased its stake in Standard Chartered Bank from 18 percent to 19 percent, and this week received US antitrust approval to raise its stake in Merrill Lynch.

Responding to queries pertaining to the firm's increasing exposure to the increasingly volatile financial services sector, Manish Kejriwal, a senior managing director at Temasek, said that “the financial services industry is one we believe in because in emerging markets like Asia, we see its growth as a proxy of economic growth, especially in China, India and Indonesia”.

Temasek currently has offices in Singapore, Mumbai, Beijing, Shanghai, Hong Kong and Mexico City, where it opened an office earlier this year in May. It is also opening an office in Sao Paolo later this year. The firm said that while its primary focus is still on Asia, it is open to increasing its exposure to other markets such as Latin America and Russia through both, direct investments and funds.