What now for Temasek?

Euromoney, Op-ed, August 2009

So what now for Temasek? Chip Goodyear’s curious decision to step down from the chief executive role several months before he was even due to commence it raises a number of questions about the direction of Singapore’s state investment arm.

Assessing the impact depends on what you think Goodyear was appointed for in the first place. If it was to bring resources nouse and a change of asset allocation to the sovereign fund, well, that’s actually been underway all year anyway. Temasek has been selling down its western bank exposures, albeit getting out of Bank of America (in which it gained a stake through its Merrill Lynch holding) and Barclays at what history will probably judge as being the worst possible time to do so. And almost every significant recent purchase it has made has been in the resources sector anyway: a stake in the Chinese iron ore producer Lung Ming, and a $303 million purchase of a stake in Olam International, which is mainly involved in soft commodities. Temasek had already set its new asset allocation formula, with 10% of the portfolio in emerging markets such as Latin America and Africa alongside 20% in developed markets, 30% in Singapore and 40% in Asia, before the change of CEO was announced. Sure, Goodyear would have been helpful to find the right energy assets, but this policy can be rolled out without him.

Instead, the bigger significance is in what Goodyear represented: independence and new ideas. Temasek is among the more transparent of sovereign wealth funds, with a nine-strong board among whom only one member is a representative of the Singapore government, but it has never really looked so independent from a distance. That’s for just one reason: because its chief executive is not only someone whose background is in government (the Ministry of Defence), but because she is the wife of the prime minister.

Until the ill-fated western bank stake acquisitions, there was nothing to suggest that Ho Ching was doing anything other than a good job: that’s not the reason she was on her way out, and Temasek’s courtship of Goodyear predates the disastrous Merrill purchases anyway. Instead, Goodyear was important because he demonstrated a clear commitment to run the fund on absolutely commercially-minded principles independent of the government – even if that was already happening in practice. That, in itself, was important because Temasek wants to look as different as possible from the likes of Abu Dhabi Investment Authority and other Gulf sovereign funds, expecting those funds to come under greater scrutiny from American and EU regulators and governments.

It’s that initiative, more than the rebalancing of the portfolio, that is derailed by Goodyear’s change of heart and the retention of Ho Ching of the top seat. Temasek’s own statement that there were “differences regarding certain strategic issues that could not be resolved” is troubling and doesn’t look good either, because it raises the assumption that where Goodyear had wanted to implement change, it was resisted. Having announced change and seen it reversed, the net effect on perception of Temasek is worse than if they had never announced a change at all.