Temasek: Investing for regional growth

Temasek has been present as an investor in ASEAN since 2002. How do you see the potential of the region?

If we look at ASEAN, we have 10 different economies with 10 different characteristics well. In a sense, it is an interesting region because there are opportunities in most of the 10 countries but there are also cross border opportunities. As Temasek looks at the region, we look at it from both those perspectives. What's interesting in recent years has been the emergence of an innovative culture within ASEAN.

We have started to invest directly in companies in ASEAN, so that's a positive as well. What's interesting is not just the companies that we have been funding and the successes of these companies, but the fact that other investors are beginning to see the value of ASEAN as an innovative geography with good companies to think about investing. That's a big plus for us, in the sense that it validates our belief, taken four years ago when there were not as many startups as there are today, that ASEAN would be able to spawn these companies.

You define yourself as a generational investor. How does that differentiate you from traditional private equity firm? What value does it add to your investment but also to the companies that you invest in?

The term generational investor is capable of all kinds of meanings. Generational investor, inter-generational steward, it depends on what perspective you look at. I think we have to be clear about how we see ourselves.

When we look at assets that we own, we are there to make sure the long-term sustainable return profile of Temasek can be maintained. That means that you need to do portfolio shifts from time to time. That doesn't mean that we have to sell all our companies, but we have to make sure that the companies we have, that we own for longer period are relevant to the portfolio for those long-term sustainable returns.

We do our part to ensure that we have the right board in place. We look at the strategies they have, and we may question them. We are engaged shareholder, not an intrusive shareholder; we are not involved in day to day management. We do that because we feel that's what a responsible investor must be. If you are a generational steward, you can't just sit back and not pay attention to what is it that you are responsible for. We think ourselves as being responsible to make sure that pie continues to grow, because the returns go towards helping the government in terms of its operating budget.

One of the things we like to say is we do things today with tomorrow clearly on our minds. Today, for a part of our portfolio, we are reaping the benefits of seeds that were sowed many years ago, from 1960s onwards. We ourselves are very focused on sowing today the seeds that will benefit people a generation ahead. It's very important for us to remember that we have to create for the future.

Talking about how you adapted your future, one of the big moves you've made since 2011 is increase your portfolio into technology, life science, non-banking financial services and consumer.  What do you expect from this shift in focus in the years to come?

You have to evaluate periodically your strategy. It's all about getting the returns that we need to do well. In 2011, we did a review and as we looked at the post GFC world, we identified these areas that were quite key to where we saw competitiveness.

One was technology, and so we have a TMT group and traditionally the bulk of portfolio was in traditional telecom and media assets. We wanted to do more in technology, pure tech which is linked to the internet or otherwise. It could be infrastructure, technology infrastructure for example.

The second is life sciences, because that we saw had huge opportunity and the convergence of technology with pharma for example was an important step, looking at data in terms of bioinformatics was going to be key, think about personalized medicine or democratization of information in medical services.  

The third was consumer, because in our four investment themes, urbanization, middle income population, comparative advantages and emerging champions, consumer must be right in the middle of it. For the middle-income class in emerging economies, if you don't have consumer, you are missing out.

The fourth sector was financial services which has always been an important sector for us but instead of banks, which we were very long on, we said that we should diversify into insurance companies, payments, fintech and asset management.

We added a fifth, which is plant-based protein, vertical farming and so on.

These five sectors comprised about 5% of our portfolio valued back in 2011 when we started to shift. Today it's 26% of our $308 billion portfolio. A lot of that shift has come because of the uplift in value.

If you look at a straight line of the portfolio return, you will see that almost every sector has performed quite well. We value our private investments and shareholders' funds; it's very conservative. We are very comfortable with the strategy that we've adopted. Obviously, from time to time we have to continue to look and see whether we still want to do that.

The latest thing that we've done is to set up six task forces to look at cross-sectoral trends, because we saw the convergence of different things. If you look at wearable, is it a consumer device, is it a healthcare device, is it tech device? How do you characterize it? Tech, consumer, healthcare? It doesn't matter anymore. These are cross-sectoral. Now we are thinking about how to look at investing in cross-sectoral trends, because we think that's the future. Whether it's connected world, whether it's active lifestyle or longer lifespans, one of these areas we are looking at is the sharing economy. We are beginning to put together teams from different sectors and markets and looking at these opportunities and that's getting more collaboration. Some of these investments require us to go earlier in our investments rather than a traditional later stage growth equity investor that we've been, because you have to capture this value early in order to see where it's evolving and try to capture value as they go up the growth curve. That's what we've been doing. That's the shift that we've taken. I think that's probably the right thing that we've done so far.

The United States represents your third largest geographic portfolio concentration, and also the biggest share of new investments for the last year. What are the synergies that you identified for Temasek specifically in the US?

If you think about the US, if you look at our four themes, which we have not changed and which remain relevant, and you think about comparative advantages and you think about the sectors that we just mentioned, look at technology, life sciences, healthcare and biosciences, consumer, and you look at payments and fintech, the US is at the forefront of this. is there too, but US is very innovative. As we think about earlier stage and accessibility to these opportunities, we look at later stage and you look at investment environment that is dynamic, if you are not investing in the US, you might not be able to take advantage of these trends and these interesting business models and innovative ideas and products which are emerging. It is probably not surprising that we've allocated the most each year in new investments for the last four years to the United States.

Our investment profile in the US has increased significantly since we set up in New York but even more so after we set up in San Francisco because the West Coast tends to be the hotbed for innovation as of now with life sciences and healthcare as well as technology clearly leading the way in the West Coast.

If you think about the fact that we have increased our investment headcount in US so significantly in the last few years, that represents the opportunity in the US.

Going forward, in a benign investment environment, I would say that the US will continue to be at the forefront of investment dollars in terms of allocation. We are very keen to continue to invest at the pace that we are investing in the US, and we hope that we can find opportunities there. Obviously, this investment environment is an interesting one. We have good growth rates in the United States.

Could you share with us your commitment to the United Nations Sustainable Development Goals and your role in delivering an ABC World?

Committing to the SDGs is something that every responsible investor needs to do. First of all, we need to think about it seriously and then do something about it. We do take this very seriously; it's a multiyear journey. We set up the stewardship and sustainability group back in 2016.It was a manifestation of things that we've been doing for some years already. We were confident enough to say, let's make a stand that this is important for us as an institution. Many of our companies have already been involved in things which fall within the 17 goals.