Deputy Prime Minister Lawrence Wong assured Singaporeans that Temasek’s FTX loss, while disappointing, will not impact the Net Investment Returns Contribution (NIRC).
“The FTX loss will also not impact the NIRC as the NIRC is tied to the overall expected long term returns of our investment entities and not to individual investments,” he explained to the House on Nov 30.
DPM Wong was answering questions regarding on the FTX issue.
On Nov 17, following the collapse of FTX — a cryptocurrency exchange — Temasek announced that it would write down its US$275 million investment in FTX, irrespective of the outcome of the cryptocurrency exchange’s bankruptcy protection filing.
Despite writing off the FTX investment, DPM Wong said that Temasek’s early-stage portfolio, as of March this year, still performed better than industry averages, with an internal rate of return in the mid-teens over the last decade.
Risk taking is essential
On investments in new technology and early-stage companies, DPM Wong stated that risk taking is an essential part.
Some may be genuinely revolutionary, like the Internet, while some may turn up to be just hype and fizzle over time.
“But even with genuinely revolutionary technology, there are risks, many startups will fail, while a few will prove successful and grow into industry leaders like Tencent or BioNTech,” he said.
“The skill of venture capitalist lies in discerning the promising projects and backing them. Risk taking is an essential part of such investments.”
While Singapore’s investment entities have to do their due diligence with the information available, risks will continue to be there.
“Having made the investments, they monitor the investee companies closely, but no amount of due diligence and monitoring can eliminate the risks altogether,” he explained.
Disappointing but Temasek will learn and improve
A loss, however, is still disappointing.
“It is disappointing when there is a loss by our investment entities as in the case of Temasek’s investment in FTX. Even more so because the loss arose from what turned out to be a very badly managed company, and from possible fraud and mishandling of customer funds,” said the DPM.
And that other leading global institutional investors like BlackRock’s and Sequoia Capital’s investment in FTX did not mitigate this.
What happened with FTX has caused financial loss and reputational damage to Temasek. But DPM Wong is confident that Temasek’s board and management team will learn and improve.
“Temasek recognises this and has issued a comprehensive statement to explain its due diligence process and the circumstances leading to its investment in FTX. Temasek has also initiated an internal review by an independent team to study and improve its processes and to draw lessons for the future,” he shared.
DPM Wong later added that the review will be led by people who are separate from the investment team that made the decision.
Governance structures extensive
DPM Wong added that the governance structures in place today for Temasek and GIC are already more extensive than those of a typical company.
“Temasek, which is an investment holding company, is audited by commercial auditors. GIC which manages public funds is audited by the auditor general. As Fifth Schedule entities both Temasek and GIC are subject to the President’s oversight of their budgets and key appointments,” he explained.
The occurrence of investment losses does not in itself imply that the governance system is not working, said the DPM.
“What is important is that our investment entities take lessons from each failure and success, and continue to take well-judged risk in order to achieve good overall returns in the long term. In this way, we can continue to add to our national reserves and provide a stable income stream to fund government programmes for a long time to come,” he concluded.
