Singaporean sovereign wealth fund Temasek Holdings, which invested billions in investment bank Merrill Lynch, yesterday reported a record profit of S$18.2 billion (US$12.8 billion).
But the state-linked investment firm in control of some of Asia’s best-known companies warned that slowing global economic growth following the US financial crisis could limit future opportunities.
“The fallout of the credit crisis will continue to dampen the global economy over the next 24 months, with sharply escalated oil and food prices beginning to test inflation expectations,” company chairman S. Dhanabalan said.
The record annual profit for the year to March covered a period during which Temasek invested US$4.9 billion in Merrill Lynch.
That deal followed the financial crisis and global credit crunch sparked by the meltdown in the US subprime mortgage sector. Sovereign wealth funds like Temasek have stirred controversy after rescuing big banks hit by the crisis.
The funds, government-created investment vehicles, have emerged as a potent force in global markets, sparking concerns that their investment policies are too opaque and could threaten national security.
Temasek, which has claimed a record of transparency, said strong operating performance by its portfolio companies “and healthy realized gains from its direct investment activities” contributed to its record profit.
It said in a statement that its portfolio rose in value to S$185 billion, up 13 percent from S$164 billion the previous year.
But Dhanabalan said Temasek was worried about risks from an environment of high inflation and slowing growth, sometimes referred to as “stagflation.”
Dhanabalan said: “This presents huge socio-political as well as economic risks in the next three to five years. Opportunities may be limited in such a scenario.”
Temasek is the largest shareholder in Merrill, which announced last month that it was dumping billions of dollars of mortgage debt at a steep loss and raising US$8.5 billion in new capital, including US$3.4 billion from Temasek.
The Singaporean fund first invested in the US bank Merrill Lynch in December, with a requirement that if Merrill raised more capital within 12 months at a lower share price, Temasek would be compensated for the difference.
The proviso kicked in for the most recent Temasek investment into Merrill, with the fund putting that US$2.5 billion compensation back into the US bank along with another US$900 million.
Temasek said for the first time net investments outside Asia were S$10 billion, exceeding net investments within Asia of S$5 billion.
Its exposure to economies outside Asia increased from 22 percent of its portfolio to 26 percent, due to the Merrill Lynch stake and investments in Latin America and Russia, the company said.
For the financial year, Temasek reported total shareholder return of seven percent by market value. That compares with the 27 percent in the previous year.
Temasek controls Singapore Airlines, Neptune Orient Lines and Singapore Telecommunications as well as other major regional firms.
It is one of two Singapore government investment vehicles along with the Government of Singapore Investment Corp.
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