Sound strategy not enough if players don’t adapt to shifts in the game
By WONG WEI KONG 19 May 2009
So Temasek Holdings will now line up to a new strategy to play the investment game. But that, in itself, should not be taken as a guarantee of better future returns. Nor should it put an end to the questions being asked of its recent losses - in fact, its chequered track record suggests that the Singapore investment agency should be subjected to more, not less, public scrutiny.
Last week, Temasek revealed that it has tweaked its long-term investment direction to focus more on Asia and emerging markets such as Brazil and Russia, with reduced emphasis on developed countries like the US and Europe.
The approach was dubbed ‘10-20-30-40’ (which should have brought a wry smile to most soccer or sports fans’ faces) - and aims for about 10 per cent of its portfolio allocated to Latin America, Russia and Africa; about 20 per cent to Organisation for Economic Cooperation and Development (OECD) countries, or the developed countries; 30 per cent to Singapore investments; and the remaining 40 per cent to the rest of Asia.
This was a switch from its previous strategy, where Temasek said it would park about one-third of its assets in Singapore; one-third in Asia, excluding Japan; and the rest in OECD countries. That itself marked a change from its earlier strategy, when it invested mostly in Singapore companies.
But, as any soccer pundit will tell you, what ultimately wins games is not whether teams line up in a classic 4-4-2 formation or the now-more-fashionable 3-5-2 or 4-5-1; what’s more important is having the players with the skill and discipline to effectively carry out the given formation. It requires managers who are able to adapt to changing conditions on the ground and react accordingly - for instance, a team that plays a nominally attacking 4-3-3 formation can quickly revert to a 4-5-1 if more defensive muscle is needed.
If any reminder was needed that strategies alone do not produce winning outcomes, it came - just two days after Temasek revealed its new approach - in the form of news that Temasek had cut its losses in Bank of America (BOA). The Singapore investment agency sold its 3 per cent stake in the bank, resulting in an estimated loss of about US$3 billion. Temasek had invested a total of US$5.9 billion for a 14 per cent stake in Merrill Lynch since December 2007 - under its previous strategy to buy into global banks - before Merrill was taken over by BOA on Jan 1 this year. Some have cast the sale as the result of the shift now in investment strategy. But an equally plausible reading, given that it had insisted it was invested for the long term, would be that Merrill/BOA was simply a bad, mistimed investment, and Temasek decided to bail out before it lost even more money.
It should be remembered, too, that it’s one thing to change the asset allocation to expose more of the portfolio to growth and less of it to risk, and another to actually achieve the desired performance.
Examples can be found within Temasek’s own portfolio. By most accounts, Temasek has done well with its investments in Chinese banks, including China Construction Bank and Bank of China; and its investments in the Indonesian banking sector, as well as its Indian investments, have also yielded good returns. Yet, China, India and Indonesia would seemingly be high-risk emerging markets. On the other hand, Australia would appear a low-risk, mature market. However, it is also the scene of one of Temasek’s worst investments, which saw it paying A$401.5 million to take a 12 per cent stake in ABC Learning in May 2007, only to see the world’s biggest childcare operator collapse under nearly A$1 billion (S$1.1 billion) in debt last November and its assets seized by lenders. So, strategy aside, it’s really down to execution and making the right call for each investment.
And achieving the desired outcomes under the ‘10-20-30-40’ strategy would require that, as well as the right people and processes. Some 350-strong, Temasek takes pride in having about two-thirds of its people below the age of 40, and with more than 40 per cent of its senior management team coming from outside Singapore. More than half of its people have prior experience in the financial services industry - with the firm attracting ‘Wall Street types’ in the past few years. But given the recent track record, does this mix need to be changed? What about the internal processes that frame their work?
Hopefully, these issues will not escape Temasek’s attention, even as it presses ahead with a new game plan in hand. Successful teams use the off-season to change their mix and rebuild for games ahead. So too should Temasek, as it takes a breather from the breakneck speed of investments in recent years. And with new chief executive Chip Goodyear taking over from Ho Ching, it really is a window of opportunity for Temasek to take stock. Ultimately, Singapore needs Temasek to win - not draw or lose.
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Team Temasek needs to start scoring
Sound strategy not enough if players don’t adapt to shifts in the game
By WONG WEI KONG
19 May 2009
So Temasek Holdings will now line up to a new strategy to play the investment game. But that, in itself, should not be taken as a guarantee of better future returns. Nor should it put an end to the questions being asked of its recent losses - in fact, its chequered track record suggests that the Singapore investment agency should be subjected to more, not less, public scrutiny.
Last week, Temasek revealed that it has tweaked its long-term investment direction to focus more on Asia and emerging markets such as Brazil and Russia, with reduced emphasis on developed countries like the US and Europe.
The approach was dubbed ‘10-20-30-40’ (which should have brought a wry smile to most soccer or sports fans’ faces) - and aims for about 10 per cent of its portfolio allocated to Latin America, Russia and Africa; about 20 per cent to Organisation for Economic Cooperation and Development (OECD) countries, or the developed countries; 30 per cent to Singapore investments; and the remaining 40 per cent to the rest of Asia.
This was a switch from its previous strategy, where Temasek said it would park about one-third of its assets in Singapore; one-third in Asia, excluding Japan; and the rest in OECD countries. That itself marked a change from its earlier strategy, when it invested mostly in Singapore companies.
But, as any soccer pundit will tell you, what ultimately wins games is not whether teams line up in a classic 4-4-2 formation or the now-more-fashionable 3-5-2 or 4-5-1; what’s more important is having the players with the skill and discipline to effectively carry out the given formation. It requires managers who are able to adapt to changing conditions on the ground and react accordingly - for instance, a team that plays a nominally attacking 4-3-3 formation can quickly revert to a 4-5-1 if more defensive muscle is needed.
If any reminder was needed that strategies alone do not produce winning outcomes, it came - just two days after Temasek revealed its new approach - in the form of news that Temasek had cut its losses in Bank of America (BOA). The Singapore investment agency sold its 3 per cent stake in the bank, resulting in an estimated loss of about US$3 billion. Temasek had invested a total of US$5.9 billion for a 14 per cent stake in Merrill Lynch since December 2007 - under its previous strategy to buy into global banks - before Merrill was taken over by BOA on Jan 1 this year. Some have cast the sale as the result of the shift now in investment strategy. But an equally plausible reading, given that it had insisted it was invested for the long term, would be that Merrill/BOA was simply a bad, mistimed investment, and Temasek decided to bail out before it lost even more money.
It should be remembered, too, that it’s one thing to change the asset allocation to expose more of the portfolio to growth and less of it to risk, and another to actually achieve the desired performance.
Examples can be found within Temasek’s own portfolio. By most accounts, Temasek has done well with its investments in Chinese banks, including China Construction Bank and Bank of China; and its investments in the Indonesian banking sector, as well as its Indian investments, have also yielded good returns. Yet, China, India and Indonesia would seemingly be high-risk emerging markets. On the other hand, Australia would appear a low-risk, mature market. However, it is also the scene of one of Temasek’s worst investments, which saw it paying A$401.5 million to take a 12 per cent stake in ABC Learning in May 2007, only to see the world’s biggest childcare operator collapse under nearly A$1 billion (S$1.1 billion) in debt last November and its assets seized by lenders. So, strategy aside, it’s really down to execution and making the right call for each investment.
And achieving the desired outcomes under the ‘10-20-30-40’ strategy would require that, as well as the right people and processes. Some 350-strong, Temasek takes pride in having about two-thirds of its people below the age of 40, and with more than 40 per cent of its senior management team coming from outside Singapore. More than half of its people have prior experience in the financial services industry - with the firm attracting ‘Wall Street types’ in the past few years. But given the recent track record, does this mix need to be changed? What about the internal processes that frame their work?
Hopefully, these issues will not escape Temasek’s attention, even as it presses ahead with a new game plan in hand. Successful teams use the off-season to change their mix and rebuild for games ahead. So too should Temasek, as it takes a breather from the breakneck speed of investments in recent years. And with new chief executive Chip Goodyear taking over from Ho Ching, it really is a window of opportunity for Temasek to take stock. Ultimately, Singapore needs Temasek to win - not draw or lose.
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