Reasons for average score

WHAT pulls Temasek down in Truman's report is its investment behaviour. It got a zero, like 12 others, including the Kuwait Investment Authority.

It was found wanting in two crucial sub-categories, says Mr Truman.

These are known policies on the use of leverage and derivatives. Together, they show clearly how an SWF manages risk.

Explaining their importance, he says: 'Leverage and derivatives should be cautiously paid attention to.

'A general risk management framework is valuable to avoid being blown hard by extraordinary risk-taking and management risk later on.'

He advises that Temasek should disclose risk management rules.

'If an SWF has a publicly stated risk management policy, it helps bind the management to follow that policy.'

Another reason for its mediocre ranking is its nature, in that it is a non-pension fund.

All the 10 pension funds came in the top 15 spots.

Says Mr Truman: 'Pension funds are somewhat more precisely defined institutions and therefore might be expected to perform 'better'.'

Yet, he adds that some non-pension SWFs, such as those from Alaska, Norway and Timor Leste, get as high a score as pension funds.

GIC versus Temasek

DESPITE its average score, Temasek still ranks above GIC, in the category called transparency and accountability.

The judging points include whether an SWF divulges details of its investment strategies, discloses what and where its investments are, and audits its activities.

One reason Temasek is considered more open, says Mr Truman, is that it resembles a private company, and is more forthcoming about its investment activities.

For instance, Temasek declared its annual shareholder return, 7 per cent, and gave information about explicit investments, whereas GIC gave only a rough average return of 4.5 per cent over the past 20 years, he adds. Still, Temasek has been criticised more often than GIC about the opacity of its operations and investments.

This may be because Singaporeans feel Temasek does not act with the public's interests in mind, says Mr Truman.

'Although Temasek has a much better score under our category of transparency...it did not release enough information on its operation to reassure the people its business is fully aligned with the public's interests,' he adds.

However, GIC fared better in structure and governance. According to his 2008 report, better scores in these two sections suggest GIC has a more defined objective for its investments and discloses more information about the roles of the Government and fund managers.

Thus, it is more reassuring to the public, said the 2008 Truman report.

No one's perfect

NO FUND got a perfect score of 33.

Each fund has its weaknesses and its specific reasons for releasing and retaining information.

For this reason, Mr Truman says it is best to peruse the entire scoreboard with the breakdowns of the total score.

'We've published the complete results so they allow others to reach their own conclusions about the funds and mix-and- match the results.'

He adds: 'No fund received a 'perfect' score, but one can distinguish between different broad categories of 'performance' on the scoreboard.'

Temasek, GIC to move up?

MR TRUMAN expects GIC and Temasek to better their total scores this year because he believes they have tried to be more upfront about what they do.

'The reason Temasek would score higher is that its 2008 annual report was more complete than its previous annual report.

'In the case of the GIC, it issued its first annual report in 2008 and that contained more information than had been released in the past.'

He indicates that these changes are positive signs in the shift in mentality among SWFs, a shift that will result in more, not less, openness.

'I think transparency and accountability have improved in many SWFs in recent years, in particular, the two in Singapore, and that will continue.

'One reason is they have become larger and have attracted more attention abroad and at home.

'A related reason is the pressure from the international community and people like myself,' says Mr Truman.

This article was first published in The Straits Times.