Global Capital, Funds and FDI > Sovereign Wealth Funds > Case Study: Temasek Holdings
Case Study: Founding of Temasek and its role in national building
Related topics: Mobilising Finance | Investment Promotion | Sovereign Wealth Funds | Pension Funds
Starting out with the nation building years of Singapore from 1959,
this note sets out the rationale for the founding of Temasek Holdings. Secondly, it distills the benefits accrued to Singapore, in areas related to economic development and fiscal sustainability.
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Incorporated on 25 June 1974 under the Singapore Companies Act with a then asset base of approximately S$354 million (US$253 million), Temasek Holdings is one of Singapore’s two sovereign funds today. As a private exempt company, Temasek “owns and manages its assets, investing and divesting with full commercial discretion and flexibility under the guidance of its Board”.
Photographer: Munshi Ahmed/Bloomberg
Beginnings
Newly Independent Singapore in 1965 was a Third World Country with poor living conditions and moribund economic growth. Furthermore, following the separation from Malaysia, the withdrawal of British troops in 1971 left the Singapore leaders with an urgent need to maintain economic stability in Singapore.
The Founding of Temasek
As the size, scale and scope of state-led investments grew over the years, the need grew for a holding company to be created, so as to “free the Ministry of Finance to focus on its core role of policymaking and regulations”.
Then Deputy Prime Minister, Dr. Goh Keng Swee, further stressed the need for Singapore’s State Owned Enterprises (SOEs) to be run on a commercial basis in 1972.
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The above context prompted Singapore to create a strategic holding company run on commercial principles. On 25 June 1974, Temasek Holdings was born. Incorporated under the Singapore Companies Act as an Exempt Private Company3 that owns and manages assets on a commercial basis, it is neither a statutory board nor a government agency.
The Evolution of Temasek
At its inception, Temasek’s main role was to manage the success of its inherited investments and inform the Ministry of Finance of their progress. In essence, it was to “separate the regulatory and policy making function of the Government from its role as a shareholder of commercial entities”.
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However, from the turn of the 1970s through to the 1980s, Temasek started taking on a more commercial and entrepreneurial role as an engine of economic growth for Singapore. Temasek-linked companies (TLCs) were provided with “more capital, better management, [and] more freedom to manage on a results-based system of reward”.
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By the 1980s, TLCs in key industries like shipping and telecommunications became independent and high profitable. This resulted in the divestment and restructuring of Temasek assets, mainly through the stock exchange listing of the TLCs to promote private sector participation as well as to enhance Singapore’s capital markets.
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In the 1990s and 2000s, Temasek started to invest more aggressively overseas, starting with investments in Southeast Asia and Asia Pacific, and then to the UK and the US.
Learning Points
The Temasek case allows for 4 potential benefits for other economies, namely:
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Boost fiscal performance
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Stimulate local investments
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Develop capital markets through selective privatisation
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Develop human capital
Investment Promotion