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Cautious Temasek turns to startups as trade risk looms

Singapore state investor's unlisted assets grow to $88bn in annual report

Singaporea's Temasek Holdings expects its investments in early stage companies to provide higher aggregate returns in the long term.    © Reuters

SINGAPORE -- Temasek Holdings is turning to startups and unlisted businesses as it hunts for higher returns, a strategy expected to accelerate as the Singaporean state investment company warns of increasing risks from the U.S.-China trade war.

"For a longer period of time, our unlisted assets have given higher returns than listed assets," Rohit Sipahimalani, joint head of Temasek's portfolio strategy and risk group, told reporters on July 10, when the investor released its latest annual report.

Unlisted assets under Temasek's portfolio reached 120 billion Singapore dollars ($88.5 billion) as of the end of March, more than double the 2013 figure. In January, the company joined Google and others in venture funding for Go-Jek, Indonesia's fast-growing ride-hailing company.

The value of Temasek's unlisted assets grew about 9% from the prior fiscal year, though the ratio of such assets in the portfolio remained similar at 39% owing to strong stock markets.

Sipahimalani called a 60-40 balance between listed and unlisted assets "reasonable." The risk group leader cited the need for flexibility and liquidity provided by listed assets, as well as the higher risk of their unlisted counterparts.

Early stage companies make up nearly 3% of Temasek's portfolio. These investments are expected to "deliver higher returns in aggregate over the long term," the company said in a statement.

Temasek's investments during the fiscal year ended in March include innovative companies such as Impossible Foods -- a Silicon Valley-based maker of sustainable, plant-based burger patties -- and Singaporean biotech company Tessa Therapeutics, which develops cell therapies to cure cancer.

Active venture and private investments continue this fiscal year. Temasek and fellow Singaporean government investor GIC participated last month in a $14 billion funding round for Ant Financial, an Alibaba Group Holding-linked Chinese unicorn.

Temasek's net portfolio value in March reached a record S$308 billion, rising 12% to achieve a second straight year of double-digit growth. The strong global economy helped lifted share prices of investments such as Singapore financial group DBS Group Holdings, Industrial and Commercial Bank of China and South Korean biopharmaceutical firm Celltrion.

Overall, the portfolio was weighted 68% to Asia including Singapore.

New investments during the fiscal year totaled S$29 billion, up 81%. Divestment declined 11% to S$16 billion. Temasek made sizable investments in listed firms as well, including Chinese tech leader Tencent Holdings and American chemical company DowDuPont. The company also invested in Boeing and Airbus, the world's two largest airplane makers.

Looking ahead, Temasek has turned bearish. "Over the next year or two, given the outlook that we see right now, we would expect to slow our pace of investments," Sipahimalani said.

Temasek sees a growing probability of downside risks in the global economy for the midterm due to rising trade and geopolitical tensions and the risk of a recession in the U.S. Stringent selection of companies with higher growth potential, listed or unlisted, becomes even more crucial.

"We don't expect a full-blown trade war with punitive tariffs on a wide range of goods in a wide range of countries," said Michael Buchanan, senior managing director for the portfolio strategy and risk group. "We do think, however, there will be continued tensions."

Current tariff levels are relatively low, Buchanan said, but Temasek fears an escalation that spreads tensions beyond the U.S. and China. Companies that engage heavily in cross-border trade, "especially those that have a lot of inter-industry goods going backwards and forwards multiple times in the production process," would be "most impacted," he said.

Singapore's citizens watch the investment performance of both Temasek and GIC closely. The affluent but aging city-state requires more revenue to fund medical and other social spending set to rise in the long run, which heightens the pressure on Temasek and GIC to contribute more to national coffers.

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