Temasek Holdings must be accountable to the people

posted anonymously online, April 2010 (source)


Temasek Holdings

Group Income Statement in S$ million
For year ended 31 Mar		2004	2005	2006	2007	2008	2009
Revenue		56,468	67,520	79,822	74,563	83,284	79,615
Cost of sales		(37,659)	(43,780)	(53,309)	(49,282)	(53,290)	(57,477)
Gross profit		18,809	23,740	26,513	25,281	29,994	22,138
Other operating income		1,482	3,334	7,678	8,370	15,870	16,198
Expenses:	Selling & Distribution	(3,559)	(3,939)	(4,086)	(4,278)	(5,197)	(5,042)
	Administrative	(5,722)	(7,003)	(8,040)	(8,104)	(8,619)	(8,068)
	Finance	–	(2,120)	(2,415)	(2,611)	(3,207)	(2,727)
	Other operating expenses	(3,633)	(4,648)	(4,758)	(5,053)	(8,681)	(15,333)
Profit before exceptional items		7,377	9,364	14,892	13,605	20,160	7,166
Exceptional items		2,165	404	1,666	–	–	–
Profit after exceptional items		9,542	9,768	16,558	13,605	20,160	7,166
Non-operating items		1,077	–	–	–	–	–
Finance income		619	–	–	–	–	–
Finance costs		(1,724)	–	–	–	–	–
Share of results of associated companies and partnerships		1,472	1,410	1,163	(830)	3,187	1,333
Share of results of joint ventures		787	1,037	1,263	1,566	2,182	1,870
Profit before income tax		11,773	12,215	18,984	14,341	25,529	10,369
Income tax expense		(2,050)	(1,837)	(2,518)	(1,381)	(3,055)	(1,280)
Profit from continuing operations		9,723	10,378	16,466	12,960	22,474	9,089
Profit from discontinued operations		–	31	67	16	–	–
Total profit		9,723	10,409	16,533	12,976	22,474	9,089
Attributable to:
Equity holder of the Company		7,365	7,521	12,827	9,112	18,240	6,183
Minority interests		2,358	2,888	3,706	3,864	4,234	2,906
Total profit for the financial year		9,723	10,409	16,533	12,976	22,474	9,089

(For the latest data, see Temasek Review 2011)

I want to focus on mainly just this, and not on the well documented Temasek losses, etc.

Temasek's bloated bureaucracy – What many people fail to understand is that Temasek is a fund manager incorporated as a Pte Ltd. In this sense, they are similar to many other mutual fund companies around the world. They build a portfolio of companies for their investor, which in this case is MOF. And they try to earn them a return.

The overhead and fixed costs at Temasek are outrageous. In its 2009 financial statements and balance sheets, Temasek had $140.953 billion in assets. This was down from $169.844 billion in 2008.

However, total expenses were $31.170 billion dollars or a whopping 22.11% of assets (percentage of assets is usually how funds are judged). Why was it only $25.7 billion in 2008, a year in which Temasek’s net profit was almost 3 times that of 2009!! So, how is it that in a year when net profit was 3 times less than in 2008, it incurred 21.28% in higher expenses!!

The expenses for 2009 (table) are broken down as follows:

Selling and Distribution $5.042 billion or 3.57% of assets
Administrative $8.068 billion or 5.72% of assets
Finance charges $2.727 billion or 1.93% of assets
Other operating expenses $15.333 billion or 10.88% of assets

The thing that really jumped out to me was the administrative expenses. This is expenses for salaries, rents, etc. How can a staff of only 350 incur $8 billion in administrative expenses! Do they have their own private jets, gold water faucets, etc?

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[Note. On Temasek's administrative cost:

On 22 Aug 2011, NSP secretary-general Hazel Poa called for Singapore's next elected President to champion for more transparency from Temasek and GIC as this relates to "the management of our reserves".

"It is a disturbing state of affairs when Temasek with about 400 employees can report an $8 billion administrative expense without incurring significant public scrutiny."

"$8 billion is more than one-sixth of our national budget," she said.

Temasek's corporate affairs director Serena Khoo  said Poa was "mistaken" about the expense on two counts: The group administrative expense was $7 billion last year and not $8 billion, which was reported for the year before.

"This also included expenses of subsidiary companies such as Singapore Airlines, PSA, and others, and not for Temasek Holdings only," she noted. (source)

Apparently Temasek had not made clear the nature of its financial statements, and had misled many people.

Logically then, the reported assets and  profits of Temasek Holdings also included assets and profits of subsidiary companies such as Singapore Airlines (54.78% ownership), PSA (wholly owned), and others.  The fact that Temasek apparently merges the revenues, expenses, and profits of all its subsidiaries with those of its investment arm effectively completely hides the performance of its financial portfolio, which is of concern to us.

[What are the rules for merging the income statement of a partially owned subsidiary? Ans. They are identical to those for a wholly owned subsidiary.]

So how well are Temasek's fund managers really performing?   Are the pays of its fund managers commensurate with their performance?  ]



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Also, the selling and distribution expense is incredibly high too. In the US, mutual funds are restricted to just 0.75% for distribution fees, and most expense ratio in international funds are around 1%. Generally speaking, management fees in total can fluctuate depending on the type of fund. if a fund actively buys and sell, and we are talking hundreds, maybe thousands of stocks a year, the MER (Management expense ratio) can be high. This is not the case for Temasek. Worldwide, mutual funds are able to charge a 1% fee and this fee pays for its admin costs, salaries, etc. and still affords them a profit. In Temasek`s case, this is 22.11%. An astounding number. The taxpayer has no problem 22% of assets as an expense if Temasek management produced a say 150% increase in assets. But this is a year when Temasek lost $40 billion. It is very hard to justify.

The fact is that Temasek is out of control. There is no reign or oversight on its expenses. the truth of the matter is the PAP would have been better off parking Singapore’s money with 50 of the best fund managers in the world. Not only would they not have lost billions on Shincorp, Merrill Lynch, Barclays, etc., their management expenses would have been much lower than what Temasek is charging the public. I am very interested in the salary component of Temasek`s expenses but I am sure it will not be revealed. In addition, if Singapore has its money with 50 top funds, the lowest 20% of performing fund managers can be culled every year, and replace with other fund managers. Well, when was the last time any underperforming personnel was culled at Temasek?

It's obvious that Temasek is a huge golden feeding trough for the PAP elite, a trough that the BOD is not overseeing, and may even be participating in. I am sure they make NKF look like peanuts.

Temasek should be dismantled and the funds parked with the best reputable fund managers around the world. The taxpayer does not need a shiny new building, and $8 billion a year in administrative costs. Politically, the PAP should do that. It's obvious the antiquated and unprofessional way that Temasek is run reflects badly on them when such large sums of money are lost. At least if the money was with a fund manager, and he lost that much, the PAP can deflect the blame to the fund manager. But money is power, and the PAP wants to hold all the money.

Anyway, just my 2 cents on something that I don`t think the public is too aware of.