Market swings present investment opportunities, says strategy head
EUROPE’S debt crisis may be unnerving the markets but Temasek Holdings sees an excellent opportunity to invest, cautiously, in good European companies.
Its head of strategy and co-head of portfolio management, Mr Chia Song Hwee, outlined the firm’s take on investments in an interview with The Straits Times.
He said the investment firm is eyeing European firms with good operations, limited exposure to Europe and strong businesses outside of the region.
‘In the current market environment, as you know, there are market imbalances,’ he said, citing the debt situation in Europe and slow growth in the United States.
‘So there is an abundance of opportunities for us to tap.’
But even as it goes bargain-hunting, Temasek, which manages a portfolio that stood at $193 billion as at March 31 last year, will take ‘extra precaution’ in assessing its investments, said Mr Chia.
The former chief executive of Chartered Semiconductor Manufacturing was hired by Temasek just last October – and has already taken on four major roles.
As well as being Temasek’s head of strategy and co-head of portfolio management, Mr Chia, 49, is head of credit portfolio and co-head of Singapore.
His appointment was one of several new hires that the firm has made in the past two years, as Temasek beefed up its top management ranks. It has also hired seasoned investment bankers from big American and European banks – the most recent is former UBS senior banker John Cryan – to look at investments in Europe and the US.
Speaking to the media for the first time since being hired, Mr Chia said his new job allows him to ‘come out of the trenches’ and get a macro view of investing.
Temasek recorded a return of 4.6 per cent in the last financial year, while total shareholder return over the past decade was 9 per cent a year.
While Mr Chia did not want to say if Temasek could get comparable returns for the next 10 years, he warned that the high volatility in the market will probably remain for the next few years. Temasek is eyeing opportunities as the market imbalances are generating ‘abundant opportunities’ for investments, he added.
‘However, the most difficult part of picking up opportunities in such an environment is what is the right time, what is the right valuation for the risk reward pro-position,’ he noted.
Temasek is optimistic on China, despite fears of a hard landing there. He said China’s growth story and demographics fit in with the firm’s investment philosophy and long-term objectives.
In an hour-long interview, Mr Chia spoke on a range of topics, including leadership changes and the need for transparency.
Apart from Temasek’s investment strategy, he spoke about its risk management system, which he says is robust and rigorous.
He also took on criticism that Temasek has not been consistently generating enough returns to meet its cost of capital. Mr Chia noted Temasek used the cost of capital benchmark – which takes into account things like how much risk it takes on when it invests in a company – to hold itself to a higher, more stringent standard as part of its compensation model.
He also responded to comments that Temasek had made a number of leadership changes in recent years. This, he said, is part of a healthy process as the company needs people with different capabilities to help steer its way through a complex world.
He dismissed suggestions that Temasek seemed to be acting more like a hedge fund keen on short-term profits.
Market observers had noted that over a period of about six months, Temasek bought and sold hundreds of millions of dollars of shares in major Chinese banks last year, making a profit in the process. Mr Chia maintained that those moves were part of ‘rebalancing our portfolio… We are an investor-owner, focusing on long-term returns’. He noted that despite the buying and selling, Temasek’s overall exposure to the Chinese financial sector remained the same.
Temasek is also keen to get more exposure to the energy and commodities sector, which stands at about 5 per cent.
He singled out the digital media space as one other area that the firm is keen on growing.
‘Increasingly we believe that investment opportunities are not with the traditional telco type of business but in digital media and technology space,’ he said.
Temasek is likely to issue its financials for the year ended March 31 next month.
By Aaron Low, Economics Correspondent
Published on Jun 1, 2012. The Straits Times.
STRATEGY CHIEF CHIA SONG HWEE ON LEADERSHIP CHANGES, LISTING PLANS AND TRANSPARENCY
- Why did Temasek sell Bank Danamon for more of DBS shares, rather than cash, when Temasek already owns a large chunk of the Singapore bank?
The deal is subject to approval from regulators and shareholders as necessary.
- Has a successor been found for current chief executive Ho Ching?
The CEO succession planning is the responsibility of the board.
I know since 2005, the board has established that process.
They are actively reviewing both internal and external candidates for that role, over a period of time.
I know that that is an active process and that has been going on.
- Given that your experience is more with running a firm on an operational basis, what do you bring to the table for Temasek?
In running firms, strategy is very important.
It is the starting point to everything.
I’m very comfortable to be in the strategy team.
- Are there plans to list any of the wholly owned firms such as PSA or MediaCorp?
Actually we don’t make those decisions. Those are to be made at the board of the management, based on their business needs and capital structure requirements.
I was the chief financial officer at Chartered and I took the company public. We were never told to go public by Singapore Technologies (which owned Chartered at the time).
- There have been calls asking for Temasek to be more transparent and update the public on its activities more frequently than once a year in its annual report. Can Temasek be more open?
Temasek has gone beyond the legal requirement for disclosure. So why?
We believe that those pieces of information are relevant for the public to see what we are doing and what we want to achieve.
Are those types of information more relevant for the public to have, so as to have an overall sense of the company… versus a deal-by-deal, transaction-by-transaction disclosure?
We also invest in a lot of privately held companies. Most of these deals are negotiated bilaterally and we are subject to confidential agreement. We can’t disclose, even if we want to.
Temasek portfolio at record S$193 billion (as at 31 Mar 2011)  (2012 report not available yet)