Temasek Holdings, an investment company wholly owned by Singapore's finance ministry, reported a 13.4% return for its fiscal year ended March 31, lifting the value of its portfolio to a record S$275 billion ($197 billion).
Solid gains by stocks in Singapore, China and the U.S., where much of Temasek's 60% allocation to publicly listed equities is invested, and even better returns on its unlisted holdings powered the portfolio's rebound from the prior year's 9% decline.
Still, in a briefing Tuesday, Temasek officials said the market environment has become increasingly challenging, marked by lofty valuations for publicly traded equities and cutthroat competition for private market investments.
That backdrop saw Temasek's divestments for the latest year outpace new investments for the first time in eight years.
With equity valuations looking increasingly stretched, "we took the opportunity to divest," said Michael Buchanan, head of strategy and senior managing director, portfolio strategy and risk group.
Temasek sold a combined S$18 billion of its portfolio holdings over the 12-month period, while plowing back only S$16 billion into new investments — the lowest pace in six years. For the prior year, Temasek invested S$30 billion and divested S$28 billion.
If finding value is a growing challenge in public and private markets alike, at present, Temasek sees unlisted opportunities as the place it can make the most of its organizational strengths, said Rohit Sipahimalani, joint head of Temasek's portfolio strategy and risk group and its India investment team.
For the latest year, private investments grew to 40% of Temasek's portfolio, from 39% the year before and 33% the year before that.
Money flooding into private investments now from private equity firms, sovereign wealth funds, pension funds and family offices is making it harder to source deals that meet Temasek's hurdles for "long-term, sustainable returns," said Dilhan Pillay Sandrasegara, president, head of Americas and joint head of the organization's enterprise development group, investment group and Singapore team.
Still, officials predicted Temasek's private markets experience and its global footprint — with offices in London, New York, Beijing, Shanghai, Mumbai, Hanoi, Mexico City, Sao Paulo and San Francisco — would find it swimming rather than sinking in that environment.
"It's definitely a challenge to get returns with that sort of competition (but) as long as we continue to be firmly focused on the areas that we want to invest in (such as technology), and we have the feet on the ground and good sourcing capabilities, we think that we'll do alright," said Mr. Sandrasegara.
"The most important thing … is to be able to demonstrate to the companies we're looking to invest in the value we can add," and on that score Temasek's presence on the ground and networks in key markets in Asia have some appeal to unlisted companies in the U.S. and Europe, said Mr. Sipahimalani.
"We almost never win in an auction," said Mr. Sipahimalani. But in "one-on-one negotiated deals," Temasek's strengths as a patient, long-term investor come into play, he said.
Singapore and China remained top targets for Temasek over the past year with 29% and 25% of the organization's overall investments, unchanged from the year before.
North America claimed a bigger share of the portfolio, at 12%, up from 10% the year before, with the "rest of Asia" and Australasia both dropping 1 percentage point each to 14% and 8%, respectively. Elsewhere, Europe held steady at 8%, as did Africa, Central Asia and the Middle East, with 2%, and Latin America, with 2%.
By sector, financial services accounted for 25% of the portfolio, up from 23% the year before, with telecommunications, media and technology moving in the opposite direction to 23% from 25%. Other major sectors included transportation and industrials, with 17%, and consumer and real estate, with 17%.