Temasek’s divestment of BoA stake – A clear admission of an investment error
Posted by: inspir3d in Finance & Investments, tags: Corporate Governance, Temasek“Yes, they were good long term investments with risks thoroughly assessed”
- Minister Tharman, Jan 2008 on Singapore investments in banks.
These were the words of Singapore’s Minister of Finance, slightly more than a year ago when Singapore’s SWFs made major investments in a few global financial institutions. Take note, in particular, that Minister Tharman was defending the individual investments made by the SWFs in the banks – not the portfolio performance.
A year later, everything had changed. The stock markets had declined significantly and the global financial system was in major turmoil. The stock prices of the big banks had sunk to record lows after having their balance sheets destroyed by the dislocation in credit markets. Seeing that his original argument was no longer tenable, Tharman changed his tack as the investments in the banks sunk deeper and deeper into the red. Now, instead of taking the line that the investments in the banks were good long term investments, he instead argued that Singapore’s portfolios were well diversified, and hence Singapore’s investments were fine.
‘We would be worried if global banks comprise a large proportion of the portfolios of GIC and Temasek, or for that matter, any other highly vulnerable industry globally,’ he said. ‘But these are diversified portfolios, with not a large degree of concentration risk.’
- Minister Tharman, Jan 2009, on Singapore investments in banks.
But nevermind that the markets sunk and the stock prices of financial institutions crashed. The SWFs were protected by the fact that the global banks comprised a relatively small portion of the overall portfolio. This was the official political line that was to be held by the government – and the minister’s roles were no longer to comment on individual investments, but instead just to talk about the overall portfolio performance.
MM Lee & Co. went along with it. His job, after all, is to keep the PAP afloat during times of duress. The government could no longer defend the individual investments of the SWFs, but it could defend the overall performance of their portfolios:-
“GIC and Temasek have the ability and resources to weather the ups and downs, over multiple economic and market cycles,” Lim said. “The government is confident that they will continue to deliver good long-term returns within the risk limits set.”
- Minister Lim Hwee Hua, in parliament, Feb 2009
“When we invest, we are investing for 10, 15, 20 years. You may look as if you are making a big loss today, but you have not borrowed money to invest. You will ride the storm, the company recovers, your shares go up.”
- MM Lee, Feb 2009
And while the official political line was not to comment on the individual investments, there was one man – and one man alone, who could. That would be MM Lee himself, who double hats as both Minister Mentor AND Chairman of GIC. This was the first and only admission of fault, by the only man who had the political capital to do so, by the only man with the political power to do so and yet not fear reprise.
Lee said GIC bought “too early” into global banks such as Citigroup (C.N) and UBS (UBSN.VX), which were both hammered by the financial meltdown that quickened in the second half of 2008.
“How could we have known this was the extent of the damage? You look at all the big-name banks that have gone down, misjudged the situation, ruined their careers,” he said.
“When the market fell, we went into UBS and Citi. But we went in too early. That is part of the ride.”
- MM Lee in a Reuters Interview, Mar 2009
With GIC admitting that it had made a mistake in its investments, there was only Temasek left to do the same. But it never did, choosing instead to try to wriggle out the slick and slimy way. Temasek did not release any statement to admit that its Merrill investment had been an error, unlike, for example, Warren Buffett, who admitted that his investment in Conoco Phillips was a major error. Temasek’s CEO didn’t admit that the Merrill investment had been a mistake.
Instead, they just quietly divested their BoA stake in the open market, only making a press statement thereafter. And then, Ho Ching proceed to throw smokescreens by talking about a ‘rebalancing’ of the portfolio and a ‘10-20-30-40′ strategy.
The rebalancing is a ‘re-weighing of the growth trends and the changing risks over the next decade or two, particularly for Asia’, said Ms Ho.
Ms Ho said: ‘In short, we will continue to invest like a 35-year-old with a dynamic balance for the long term. Half a century ago, one 35-year-old became the first prime minister of Singapore.
‘We invest with the appetite of a young 35-year-old for growth and risk-taking.
‘At the same time, we also share his thoughtful conservatism to plan and provide for his children’s needs for another 10 to 20 years, while he invests to build his rainy day and retirement kitty with a 30- to 50-year horizon.’
-Ms. Ho Ching in an address to Junior Pyramid, May 2009
Absolutely irrelevant, Ms Ho. Singaporeans don’t give a shit about your grand portfolio rebalancing plans. We want transparency, accountability, and an admission of fault where there has been one. And clearly, what had started as a ‘long-term’ investment is now out of the Temasek portfolio only but a year later – this is clearly an admission that your investment was a mistake.
As for the govt, notice how significantly its tack has changed. A year ago, Tharman dared to speak up for the SWFs’ individual investment decisions. Now, he only meekly says:
‘What matters to the Government is the overall performance,’ …
“it is for Temasek, not the Government, to comment on its investment moves.”
“it is the responsibility of the board and management to make individual investment decisions, whether large or small.”
- Minister Tharman, May 2009, on SWF performance
Well, Mr Shanmugaratnam, let’s just see how the long-term performance of the portfolios fare. You can be sure I’ll be revisiting this issue in 5, 10, 20 and 30yrs time. And make sure you don’t ever, ever, comment on any of the SWFs’ individual investments, ever again.
You can be sure Singaporeans will be watching.
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[...] Temasek State Fund Investments – Under The Willow Tree: Temasek’s divestment of BoA stake – A clear admission of an investment error – Inquivision: Transparency and Temasek: diversification, investments and a vote for Jim Rogers – [...]
A man like Warren Buffet or George Soros are at the extreme extreme end of the bell curve. Mr Lee or Ms Ho may be the “best” brains in the country but how can you win against a global financial tidal wave; and I wondered whether there were any winners at all in this present crisis. Perhaps then the question is who have lost least. (There is another view that brains don’t matter and it is all a matter of luck.)
But to be fair – to ourselves – Temasek, specifically Ms Ho, was already losing money even before this, when things are far better. So it can no longer be the circumstances but the person.
I think a better question to ask, and a fruitful and profitable thing to do, is not so much an accounting per se – for what can you do about spilled milk – but whether there is anything to be learnt for the billions lost, not only for Ms Ho, but for every Singaporean, and at the least we have had an involuntary and most expensive education; and thereafter what can be done for the better, and how not to lose the remaining billions – or maybe millions by the time this is read.
I can think of one thing at the moment (I am sure there could be many). And this thing is how the “civil servants”, especially the “high flyers” are selected and groomed. Most of these were picked early in life, such as when there obtained a President scholarship, and then thereafter they cannot do wrong.
And failings are not failings, but that other lesser mortals, such as those with Poly diplomas or anything else, in the same position would have done worst and no better. For if these “high flyers” failed, then the system and the people that run this system have failed and that cannot be so. So we have a self fulfilling prophecy in effect. And we have constant meaningless spin – eg bold risk taker, etc – to explain and explain away the realities, to the bewilderment and astonishment of the ordinary mortals who can only understand what he sees. And the impotent lesser mortals can do nothing, but accept whatever God says. And you will get slapped if you talk too much.
And so we have examples like Ms Ho who continued to deemed good and high performers regardless of stark reality. Further there is also no incentive to seek or spot others who could do a really better job, regardless of what is said officially, and for others to be motivated and to challenge for the position. Farmers can never be flyers. And thus also the need for foreign talent.
So we have a constant downward mediocrity spiral in the civil service – “high flyers” spotting and grooming other “high flyers” – and an constant and insatiable appetite for foreign talent.
We may already be rotting in the core.
Do you not think that the Temasek’s sale of its BoA stake is linked to the subsequent purchase of BoA’s stake in the China Construction Bank? BoA’s stake in the China Construction Bank was sold to Temasek at a discounted price too and that they took place quite near each other.
[...] a gracious Ms Ho Ching – Today In Singapore: What A Complete Balls Up! – Under The Willow Tree: Temasek’s divestment of BoA stake – A clear admission of an investment error – Inquivision: Transparency and Temasek: diversification, investments and a vote for Jim Rogers [...]
Thank you for the insightful blogpost. The Singapore Democrats have
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