TEMASEK MULLING OPENING FUND TO CO-INVESTORS

1. (U) Ho Ching, CEO of Singapore sovereign wealth fund Temasek
Holdings, disclosed in a July 29 speech that the fund was
considering opening up to co-investors from the general public. Ho
said a pilot program would organize relevant structures and devise
rules of engagement on how to proceed with co-investment by
"sophisticated investors". (Note: The Monetary Authority of
Singapore defines sophisticated investors as those with assets of at
least S$2 million or an annual income of at least S$300,000.) Madam
Ho said Temasek would test the pilot over a market cycle of five to
eight years, then consider opening up to retail investors in eight
or ten years. Ho said the plan would broaden Temasek's group of
stakeholders, improving market discipline and performance in future
decades.



2. (SBU) Song Seng Wun, regional economist for CIMB, told Econoff
that the plan was a clever move on Temasek's part, giving the fund
at least the appearance of being more inclusive to the general
public, but he did not expect much added transparency. Song said he
thought Temasek and institutional investors would be testing the
waters over the next year to see what each could offer the other as
co-investors. Institutional investors would likely see no downside
to investing alongside Temasek, but would require greater
transparency and request Temasek to open its books to scrutiny,
something the secretive fund has declined to do in the past. He
expected that Temasek would need to establish a separate investment
vehicle for outside investors that would focus on new investments
and in specific investment sectors. Although Temasek was not short
of investment funds, Song thought Temasek may want to take advantage
of a nascent market recovery to use outside funds to leverage larger
investments.

Trouble at Temasek


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3. (U) Ho also touched on the recent reversal of her decision to
step down as CEO in October and the cancellation of the appointment
of her designated replacement, Chip Goodyear (ref A). Ho said only
that the decision was "unfortunate" but that Goodyear's departure
was amicable. She said the succession review would continue and
Temasek would consider internal and external candidates to replace
her as CEO, but did not give a time frame for any decision. The
Straits Times newspaper floated a list of potential candidates
within Temasek, all except one of whom is Singaporean. The Times
speculated Temasek may find it difficult to recruit externally after
the still unclear reasons behind Goodyear's dismissal.



4. (U) Ho also revealed that Temasek had lost over S$40 billion
(US$28 billion) in the year ending in March. In February Temasek
had reported losses of approximately S$58 billion (US$40 billion) in
the eight months from March to November. The fund's sharp losses
sparked speculation that Ho's announced departure was a result of
ill-timed investments during her tenure. Although markets have
recovered somewhat since the initial loss statement, Minister of
Finance Tharman said in May that the end of year losses were similar
to those reported earlier. Temasek unloaded stakes in Bank of
America and Barclays at a substantial loss during the first quarter
(ref B). Temasek staff will receive a "negative bonus" this year as
a result. Temasek maintains a "bonus bank" for staff that can be
partially drawn down when the fund hits above-target returns, the
rest of the bonus is deferred. In down years like 2008, the bonus
pool shrinks.

SHIELDS