By Alvin Foo

• $114b gain in the five years before fall
• $56b gain despite losses during global crisis

FINANCE Minister Tharman Shanmugaratnam yesterday defended the overall track record of Singapore state investment vehicle Temasek Holdings.

He told Parliament that Temasek had made 'large investment gains' during the market cycle which began in 2003 and had included both boom and bust phases.

Temasek holds major stakes in leading local companies such as Singapore Airlines and DBS Group Holdings, and also invests significant sums abroad. Its sole shareholder is the Ministry of Finance.

Mr Tharman said Temasek's portfolio grew $56 billion from March 2003 to November last year even after taking recent sharp declines into account. It averaged returns of slightly over 15 per cent a year.

He disclosed this detail when responding to questions on Temasek's sale of its Bank of America (BoA) stake raised by Ang Mo Kio GRC MP Inderjit Singh and Non-Constituency MP Sylvia Lim. The sale led to estimated losses of between US$2.3 billion (S$3.3 billion) and US$4.6 billion, prompting criticism of the move.

In February, Parliament was told that Temasek's net portfolio value dropped $58 billion - from $185 billion to $127 billion - during March 31 to Nov 30 last year, a fall of 31 per cent.

Mr Tharman said yesterday that the 'only reasonable way' of evaluating Temasek's performance is 'to look at how the losses and gains add up, and how its overall portfolio performs over time'.

It was not realistic for Temasek to outperform the market every time or to avoid losses amid sharp market corrections, he said. 'Temasek has in fact made large investment gains over the course of the market cycle that began in 2003, including the boom that lasted till 2007 as well as the subsequent bust,' he said.

Its portfolio decline came after a 'much greater gain' of $114 billion over the preceding five years. 'Even after taking into account the recent sharp decline, Temasek's portfolio had still grown by $56 billion over the course of the cycle.'

While Temasek's full-year accounts to end-March have not been audited, he said 'the picture should not be fundamentally different' as equity markets globally 'showed no major change' at end-March this year compared to Nov 30 last year.

Temasek's performance as at last November also took into account 'all unrealised losses including mark-to-market losses on the Merrill investment'.

Temasek invested in US financial giant Merrill Lynch in December 2007. After BoA took over Merrill, Temasek's Merrill shares were converted to BoA ones.

Mr Tharman said a 'large part' of Temasek's $58 billion portfolio decline, about $32 billion, was due to the slump in the market value of the 10 largest listed Temasek-linked firms here. Their share prices retreated 41 per cent between March and November last year, in line with the movement of the market here.

Temasek has performed 'respectably' compared to relevant market indexes and reputable institutional investors, he said. 'Temasek has achieved total shareholder returns by market value of slightly over 15 per cent per year on average (in US dollar terms) over the cycle. This compares with 6 per cent annualised gain in the global equity market indices (MSCI World).'

A weighted index of world, Asian and Singapore indexes would have 'delivered more than 6 per cent', but still 'significantly less' than Temasek's gains of 15 per cent a year, he said. 'Temasek's annualised returns are also higher than what several other well-regarded investors have earned over the cycle.'

Investment experts called Temasek's 15 per cent yearly return comparable to the performances of top fund managers, and said its pay-off was due to its strategy of investing in riskier assets. APS Asset Management chairman Wong Kok Hoi told The Straits Times: 'It's a good return without doubt. If Temasek had stayed very conservative and kept money in safe instruments like bank deposits, the returns would have been far inferior.'

Yesterday, Mr Tharman also replied to Mr Singh's subsequent question on whether the Ministry of Finance was planning to issue new guidelines for Temasek and the Government of Singapore Investment Corporation for future investments.

Mr Tharman said while each board decides on asset allocation, the Government does review matters such as the overall risk profile regularly. 'This is not an autopilot system where you have three separate entities doing their own thing and the Government doesn't know how it's added up, what risks are accumulating.'

This article was first published in The Straits Times.