Date: Tue, 01 Sep 2009 03:37:03 GMT
Local: Tues, Sep 1 2009 11:37 am
Subject: Temasek is full of contradictions
Temasek released a revised charter last week that emphasized that the
Singaporean state-owned fund is managed on "commercial principles" and
eradicated any reference to government investment. That's a commendable
goal, but it skirts the basic conflict of interest between the public
interest of protecting citizens' earnings and the private-market imperative
of taking risks to seek returns.
This issue of transparency has come to the fore in the city-state of late
because the approximately 127 Singaporean dollar ($88 billion) fund lost a
bundle in last year's financial crisis and the new CEO-designate, Chip
Goodyear, inexplicably resigned in July. The public uproar is loud enough
that even legislators from the ruling People's Action Party have asked for
Temasek released a raft of accompanying documents alongside the one-page
charter last week to help clarify its goals. "Temasek is a
commercially-driven investment company and is responsible to its sole
shareholder, the Singapore Government, for delivering sustainable long-term
returns," the company said. But nowhere did Temasek explain what a
"sustainable long-term return" is, who sets that goal, or how it is set.
Temasek adds it has "institutionalized its financial discipline" by issuing
an annual report since 2004, maintaining a credit rating and issuing bonds.
These steps are commendable, but they are also incomplete. The annual report
doesn't give complete historical financials, nor does it say how much
Temasek pays in dividends to its 100% owner, the Ministry of Finance. A
credit rating is one guide to financial health, but given the agencies'
recent track records, it's not infallible. As for the bonds, they are only
lightly traded, meaning the market signal they send about Temasek's
performance is weak, at best.
The fund's relationship with government is equally confused. The
accompanying documents say the government "does not involve itself in the
operations and business decisions of Temasek" or "direct or influence the
investment or divestment decisions of Temasek." Yet the President of
Singapore must concur with board member and CEO appointments or removals and
has to approve any transactions in which Temasek draws on "past reserves."
The fund's Chairman and CEO also report to the President twice a year.
Temasek might gain more public acceptance as a "commercially driven
investment company" if it separated itself fully from government and gave
Singaporeans the option to keep their money with the fund or take it
elsewhere. That's called competition and free choice, and it's the only true
test of commercial success.