Temasek’s revised charter

Wall Street Journal Asia

In name, a commercially driven investment company, but in reality, another government appendage.

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 more disclosure.

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.

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