Geopolitics, Climate Change, AI: Temasek at 50 Challenges

An accountant by training, Chia joined Temasek in 2011, from GlobalFoundries, now the world’s third-largest chipmaker, where he was the chief operating officer. In his time at Temasek, he has headed various investment functions, including co-leading its team in China.

Temasek has come a long way from 1974 when it was formed with four staff overseeing 35 government-linked companies with a net portfolio value of $354 million. 

Now it is a global investment company, with 34 nationalities among its 950 staff. Its portfolio value has grown and is in the region of billions – $382 billion as of March 31, 2023, to be exact. Importantly, it contributes to the government budget.

The Government can spend up to 50% of the expected long-term real returns on the net assets invested by Temasek, GIC and the Monetary Authority of Singapore.

Riding on its success, Temasek has set a high bar for itself. By 2030, the portfolio is to have a 60% to 70% resilient component, held for the long term to provide stable and sustainable returns, and a 30% to 40% dynamic component, where investments are held for a shorter duration and capital is recycled for investing in higher-growth opportunities for higher returns. 

An example of an investment in the dynamic component is the Indian insurance portal Policybazaar. Temasek sold its direct stake in the parent company recently, achieving an internal rate of return of 40% and with a multiple on invested capital at 14 times at a sale price of about $391 million, sources said.

Temasek remains indirectly invested in Policybazaar through software developer MakeSense, a joint venture with tech firm Info Edge.

Not surprisingly, there will be challenges.

Chief among them is geopolitics, which is adding layers of complexity to the investing equation. 

An example where the issue has come into play recently is in the semiconductor sector, with the US imposition of export controls. There have been implications for chip firms in the United States and around the world, as well as the innovation ecosystem. 

Another consequence has been the restriction of China’s access to advanced chips and chip-making tools. 

So how does Temasek go about investing amid a complicated geopolitical backdrop?

In an interview with The Straits Times, Chia said: “We are in no position to predict outcomes, let alone influence them.”

While Temasek is a long-term investor and is less concerned with short-term volatility, a key consideration is whether it will be structurally unfavourable to invest in businesses and companies facing geopolitical headwinds, Mr Chia said.

Accordingly, investors such as Temasek will have to build in various scenarios and consider various outcomes before investing or divesting, to ensure that the portfolio remains resilient, he added.

Sensitivity around geopolitics has always been something that Temasek has had to contend with, but the scale of it has magnified in recent years.

“In the past, we had to understand the impact of countries’ policies on our investments. Would there be any impact? But with the geopolitical issues now, we have to consider the financial outcome of our investments and the implications of our investment decisions. We don’t want our actions to be misinterpreted,” Chia said.

In short, it is a much more “multidimensional” investing universe now with far more complexity. He said: “Our job is to make investments, considering all the facts and circumstances and the unknowns, and make a decision. What we cannot afford to do is to be frozen.”

Apart from geopolitics, AI is another area that adds complexity, and the two are often interlinked. But Temasek started early on AI.

For example, Chia has been a member of Singapore’s Advisory Council on the Ethical Use of AI and Data, set up by the Infocomm Media Development Authority, since 2018. He has also been on the Agency for Science, Technology and Research board since 2021.

Cyber security remains a key threat for all, with related issues such as data protection and privacy. To some extent, these issues can be resolved as businesses realise they will lose customers if these are not addressed, Chia suggests. 

But generative AI is a whole new ball game. It is not just the issue of deepfakes, where artificial images or videos that seem to come from trusted sources are generated. It is the potential creation of an entire ecosystem of false information, where detection technology and authentication systems have yet to catch up. 

Chia believes that the first step in developing a long-term solution starts with better awareness by governments, businesses, consumers and individuals on how generative AI could be misused.

Still, be it geopolitics or AI, the ultimate challenge for Temasek is being able to deal with any curveball that comes its way. Chia said that ensuring Temasek stays relevant in an ever-changing and complex world is a key priority for him and Temasek CEO Dilhan Pillay Sandrasegara.

Chia added: “We need to be agile, adaptable and able to deal with changes and ambiguity. At the same time, we must also ensure that we deliver sustainable returns over the long term.” 

With AI for example, Temasek had decided that the value of the technology is best harnessed through investing in the applications of the technology rather than investing in the technology itself.

“We needed to be knowledgeable about the technology, to form a view of whether we should take up the investment opportunity and also to help our portfolio companies in that journey,” Mr Chia said. 

In the tech world, there is the concept of agility as software developers perform an iterative process to come up with solutions. As far back as 2018, while AI was still nascent, Temasek set up an AI Pod, a small team to develop the firm’s expertise in the area. The team has made strategic investments and partnerships to accelerate the deployment of AI in Temasek and its investee companies.

By building a diverse team with multidisciplinary skill sets in areas such as AI, blockchain, cyber security, digital technology, data science and sustainability, the firm is better able to handle change, added Chia. “We have built the muscles to be adaptable.”

Lee Su Shyan

The Straits Times

Asia News Network