[h=2]Chris K: My interpretation of Temasek’s statement[/h]
June 7th, 2014 |
Author: Contributions
Here is my brief interpretation of the Temasek statement released on June 4th
on what was said about CPF as the Temasek spokesman has spoken outside his
remit.
Stephen Forshaw: “Temasek does not invest or manage the savings of
CPF members.”
The writer agrees with the spokesman even though the final outcome can only
be absolutely proved by an audit. First the writer will give his reasons
intuitively and then mathematically.
Intuitively, given the fine record of the government of keeping the goodies
to itself, the writer finds it hard to believe that the superior returns of
Temasek are not kept all to itself rather than have it pay for the interests the
government owes to CPF, however paltry these interests may be.
Then mathematically, Temasek generated a 20-year rolling rate of return of
14%. This is clearly reported in the Temasek Review and explained by the
Ministry of
Finance. Temasek delivers 50% of its Net Income not net returns to the
government for spending under the Net Investment Returns Contribution framework.
Net income is different from net returns and is comprised of the dividends it
receives from its portfolio companies and any realised profit or loss resulting
from sale minus cost of running Temasek. Unlike an investment fund like GIC,
Temasek cannot monetise its returns because to do so will change its majority
control of its portfolio companies.
After deducting the NIRC and keeping the rest of its income and valuations,
the writer surmised that Temasek balance sheet grows at a pace of 9% pa over 20
years. So let us discount the current balance sheet of $215b at 9% pa over 20
years to arrive at the starting point 20 years ago. The number is $41b. Does
this look like CPF monies to anyone? At least to the writer, it does look very
much like the value of GLCs transferred to Temasek at nominal prices, having
that value boosted to $41b by IPOs.
Finally, let us read carefully what the MOF says about the NIRC:
…comprised up to 50% of the net investment returns on the net
assets managed by MAS and GIC and up to 50% of the investment income
from the remaining assets which includes Temasek”.
The crucial words in the paragraph are net assets, in which
liabilities are netted out of the returns from MAS and GIC. Liabilities are what
the Government owed to CPF via the purchase of SSGS and investors in SGS. Notice
the change of language as these words are not cited in relation to Temasek. This
tells us that CPF monies are not in Temasek. After all, one pays interests only
to one’s debtors, right?
By the way, the $8.1b Pioneer Generation Package is paid out of the NIRC as
stated by DPM Tharman in Parliament. There are some in the public who hold
suspicions that CPF monies “are gone”. If the monies are really gone, all the
remaining returns have to pay CPF interest if the government is to avoid a debt
default. This leaves nothing for the NIRC and the PGP would not have been
funded.
Stephen Forshaw: “We thank readers for their interest in Temasek, and
look forward to the day when it is practical for us to issue Temasek Bonds to
retail investors to give them another option to save for their
retirement.”
No thanks, you are saying little. But the writer wishes to draw your
attention to the issue of Temasek Bonds to retail investors. Presently, Temasek
Bonds have about $10b of bonds outstanding, some of which has a high coupon rate
of 5%. Do note these are denominated in foreign currencies like GBP and USD –
these currencies command higher interest rates. Now if Temasek were to reduce
the certificate size of their bonds from 100,000 to 1,000 – the bonds are within
reach of retail investors. However, do not hold your breath, any S$ bonds aimed
at retail investor will have more or less the low rates of SGS.
The more interesting issue about retail bonds is that Temasek already have
structures which allow co-investments by outside investors; asset managers and
private equity funds to enjoy the superior returns of Temasek whatever that may
mean. But readers should ask this question, why are foreigners allowed to
benefit from Temasek’s returns but not citizens? If Temasek were to launch
retail bonds that are linked to co-investments or to the underlying performance
of its portfolio, then the next question: should CPF not invest in these to
generate better returns for its members than the poor returns provided by
SSGS?
In conclusion, the writer provides 10-year comparative rates of return of GIC
and Temasek in excess over the average CPF OA and SMRA rates.
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Notes:
Chris K
*
Chris K holds a senior position in a global financial centre bigger than
Singapore. He writes mostly on economic and financial matters to highlight
misconceptions of economic policy in Singapore.
Here is my brief interpretation of the Temasek statement released on June 4th
on what was said about CPF as the Temasek spokesman has spoken outside his
remit.
Stephen Forshaw: “Temasek does not invest or manage the savings of
CPF members.”
be absolutely proved by an audit. First the writer will give his reasons
intuitively and then mathematically.
Intuitively, given the fine record of the government of keeping the goodies
to itself, the writer finds it hard to believe that the superior returns of
Temasek are not kept all to itself rather than have it pay for the interests the
government owes to CPF, however paltry these interests may be.
Then mathematically, Temasek generated a 20-year rolling rate of return of
14%. This is clearly reported in the Temasek Review and explained by the
Ministry of
Finance. Temasek delivers 50% of its Net Income not net returns to the
government for spending under the Net Investment Returns Contribution framework.
Net income is different from net returns and is comprised of the dividends it
receives from its portfolio companies and any realised profit or loss resulting
from sale minus cost of running Temasek. Unlike an investment fund like GIC,
Temasek cannot monetise its returns because to do so will change its majority
control of its portfolio companies.
After deducting the NIRC and keeping the rest of its income and valuations,
the writer surmised that Temasek balance sheet grows at a pace of 9% pa over 20
years. So let us discount the current balance sheet of $215b at 9% pa over 20
years to arrive at the starting point 20 years ago. The number is $41b. Does
this look like CPF monies to anyone? At least to the writer, it does look very
much like the value of GLCs transferred to Temasek at nominal prices, having
that value boosted to $41b by IPOs.
Finally, let us read carefully what the MOF says about the NIRC:
…comprised up to 50% of the net investment returns on the net
assets managed by MAS and GIC and up to 50% of the investment income
from the remaining assets which includes Temasek”.
liabilities are netted out of the returns from MAS and GIC. Liabilities are what
the Government owed to CPF via the purchase of SSGS and investors in SGS. Notice
the change of language as these words are not cited in relation to Temasek. This
tells us that CPF monies are not in Temasek. After all, one pays interests only
to one’s debtors, right?
By the way, the $8.1b Pioneer Generation Package is paid out of the NIRC as
stated by DPM Tharman in Parliament. There are some in the public who hold
suspicions that CPF monies “are gone”. If the monies are really gone, all the
remaining returns have to pay CPF interest if the government is to avoid a debt
default. This leaves nothing for the NIRC and the PGP would not have been
funded.
Stephen Forshaw: “We thank readers for their interest in Temasek, and
look forward to the day when it is practical for us to issue Temasek Bonds to
retail investors to give them another option to save for their
retirement.”
attention to the issue of Temasek Bonds to retail investors. Presently, Temasek
Bonds have about $10b of bonds outstanding, some of which has a high coupon rate
of 5%. Do note these are denominated in foreign currencies like GBP and USD –
these currencies command higher interest rates. Now if Temasek were to reduce
the certificate size of their bonds from 100,000 to 1,000 – the bonds are within
reach of retail investors. However, do not hold your breath, any S$ bonds aimed
at retail investor will have more or less the low rates of SGS.
The more interesting issue about retail bonds is that Temasek already have
structures which allow co-investments by outside investors; asset managers and
private equity funds to enjoy the superior returns of Temasek whatever that may
mean. But readers should ask this question, why are foreigners allowed to
benefit from Temasek’s returns but not citizens? If Temasek were to launch
retail bonds that are linked to co-investments or to the underlying performance
of its portfolio, then the next question: should CPF not invest in these to
generate better returns for its members than the poor returns provided by
SSGS?
In conclusion, the writer provides 10-year comparative rates of return of GIC
and Temasek in excess over the average CPF OA and SMRA rates.
| 10 year return | Excess over OA Rate | Excess over SMRA Rate | |
| GIC | 5.3% | +2.8% | +1.3% |
| Temasek | 7.5% | +5% | +2.5% |
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Notes:
- The writer uses the 10-year to avoid IPOs from skewing Temasek’s results
upwards. - GIC returns is reported at 8.8% in USD terms, in S$ terms it should be 5.3%.
- Temasek’s 7.5% (estimated) pertains to its net income, not its net return.
Chris K
*
Chris K holds a senior position in a global financial centre bigger than
Singapore. He writes mostly on economic and financial matters to highlight
misconceptions of economic policy in Singapore.
