Singapore's state-owned investment company Temasek Holdings saw its net portfolio value tumble by around 24 billion Singapore dollars ($14 billion) wiping around 9 percent off the Singapore dollar value of its holdings in the year to March 31.
The value of Temasek's portfolio fell to around S$242 billion, or $180 billion, in the last fiscal year, from around S$266 billion, or $194 billion, in the year-earlier period. It was the first time the portfolio value declined since 2009, during the global financial crisis.
The total shareholder return (TSR) annualized over a twenty-year period dropped to 6 percent, from 7 percent in 2015 in both currency terms. The 10-year TSR in dollar terms dropped to 8 percent, and to 6 percent in Singapore dollar terms.
The figures reflected mark-to-market figures and not realized losses, the fund said. Temasek also said that it had divested a record S$28 billion worth of investments in the most recent financial year, and invested S$30 billion.
The fund said it used the liquidity-driven market rally earlier in the financial year to step up its divestments.
But in its presentation to reporters, Temasek took care to point out that its portfolio, about 60 percent of which was invested in listed companies, outperformed the benchmark indexes in Singapore and Hong Kong, which fell 15-16 percent each. It noted that around 29 percent of its portfolio is exposed to Singapore and another 40 percent is exposed to Asia ex-Singapore.
Temasek's head of strategy Michael Buchanan said global market conditions were challenging and volatile and that political pressures from the Brexit and euro-skepticism may increase the downside risks going forward.
"Anytime you have this type of political uncertainty, it's going to weigh on confidence: business confidence, capex and consumer confidence," he said. "We've already seen that in the run-up to the referendum, where you saw a decline in PMIs (purchasing managers' indexes) and other measures of confidence, and so that is likely to continue and weigh on growth."
But in addition to the immediate downside for markets, he noted that there may be investment opportunities as well.
He also said he expected the Federal Reserve would continue to see the risks of hiking interest rates too soon as greater than the risks from hiking too late. And he anticipated that China would overcome its challenges as a baseline forecast, but he noted concerns over debt levels.
Amid concerns over the impact of the U.K.'s vote to exit the European Union (EU), Buchanan noted that Temasek's exposure to Europe was small and to the U.K. specifically, it was even smaller. He noted that only 8 percent of Temasek's portfolio was exposed to Europe. Temasek's UK exposure was primarily via Standard Chartered bank, which, while listed in the U.K. doesn't have substantial business in the U.K. market, he said. The fund owned 16 percent of StanChart at the end of its financial year.
"StanChart is listed in London, but it really has no business in London. So Brexit, from a sentiment perspective, may have impacted the stock price in the near term, but in the long term fundamentals, it shouldn't matter," said Rohit Sipahimalani, the joint head of portfolio strategy.
StanChart's London-listed shares dropped as much as 18.5 percent intraday on June 24 in the wake of the Brexit referendum results, but finished the day down just 2.5 percent. The stock is still up around 2 percent year-to-date.
CEO Bill Winters took the helm in June and has begun a restructuring program to turn around the bank's fortunes, including plans to cut around 15,000 jobs, after fines from U.S. regulators and heavy loan losses.
"We're encouraged by the steps that have been taken in the last year," Sipahimalani said. "Clearly, it is also a good franchise in the emerging markets world."
Temasek said that despite the Brexit vote, it had no plan to shutter its office in London, which it opened in 2014, as it expected the city would remain a financial center, but it noted that it may consider opening an office elsewhere in Europe as well.
The fund has been pivoting its investments toward areas where it sees higher growth potential, with the technology, media and telecommunications (TMT) sectors making up 25 percent of the portfolio at the financial year's end, up from 23 percent in 2014, while financial services' portion fell to 23 percent of the portfolio, from 30 percent in 2014.
Buchanan noted that investments have included companies that take advantage of the "sharing economy," such as its stake in AirBNB. Last year, Temasek participated in a funding round that raised $1.5 billion for the home-sharing company, according to media reports. The company declined to provide information on the size of its investment in AirBNB.
Temasek considered that sharing-economy companies, such as AirBNB, are likely to be resilient to an economic downturn.
Buchanan said Temasek was investing in sustainable concepts, such as environmentally friendly product packaging, "smart energy" distribution and vertical farming. Last week, Temasek invested in a bio-fabrication company called Modern Meadow, Buchanan said.
Png Chin Yee, Temasek's head of financial services, noted that the fund was interested in increasing its insurance exposure, particularly in emerging markets and Asia, where penetration is still low. She also noted the fund is investing in payment services due to strong recurring cash flows.
"As you have cash moving away from physical cash to digital money, that area will grow," she said. But she noted that it can be difficult for financial technology companies to scale up profitably, and that more are looking toward supply banks with products instead.
Temasek will open an office in San Francisco to examine opportunities to invest in technology, it said.
Dilhan Pillay, the joint-head of the enterprise development group, noted that Temasek owns three property developments in the U.K. While two were stable-yielding investments with long-term tenants, the third was still in the development stage and Temasek would need to consider the economic environment for when that project came on stream, he noted.
Sipahimalani, the joint head of portfolio strategy, said that there wasn't much concern for Temasek about S&P Global Ratings' announcement on Thursday that it was cutting the outlook on Australia's AAA credit rating to negative from stable. He noted Temasek's exposure to Australia is low — the combined exposure to Australia and New Zealand was at 9 percent at the end of the financial year.
Most of the exposure was due to SingTel's holding in Australian telecom player Optus, which would likely be resilient to any economic downturn, Sipahimalani added.
Temasek owned 51 percent of SingTel at the financial year's end, a position valued at S$61.9 billion.
Singapore's state-owned investment company is headed by Ho Ching, the wife of the country's Prime Minister Lee Hsien Loong.