Losses from Temasek’s investment in the crypto exchange FTX has been all over the news of late. While Temasek incurs losses from time to time, what makes it different this time around is that,
- It is public…. and going viral. ALL mainstream media have covered/are covering this.
- Temasek lost it ALL. Unlikely equities, they weren’t even able to recuperate even a fraction of their investment. They had no time at all to cut losses due to the nature of the incident.
- The investment itself is operating in an industry that is going “downhill” hence all the more easier to criticize.
Much of what is being reported would be factual however, context can sometimes be left out or even overlooked.
In this article, I’ll be covering how big of a deal this loss really is along with some common myths behind how the operations of Temasek actually affects the average person.
What happened?: The FTX Saga in a nutshell
Long story short, the leading cryto exchange lead by then-legendary founder Sam Bankman-fried (commonly referred to as SPF) declared Chapter 11 Bankruptcy protection.
Jargons aside, this essentially means that FTX can still continue its operations while the company restructures itself and/or prepares a plan to pay creditors.
While the reasons behind their overnight bankruptcy are still being investigated, what is certain at this point is how the native token of FTX known as FTT was somewhat “overused” as collateral in the books of FTX and its partner company, Alameda Research.
As such, should the value FTT plunge in the market (which it did), it would effectively lower the overall “assets” that FTX and Alameda hold. Circumstances led to the massive crash of FTT in which it crashed by almost 80% on the 8th of November hence leading to the situation which we are in now.
Alvin also shared his thought on why FTX’s failure is a big deal.
Why is Temasek Holdings involved?
Temasek had invested into FTX across 2 funding rounds, as stated in their press release:
We invested US$210 million for a minority stake of ~1% in FTX International, and invested US$65 million for a minority stake of ~1.5% in FTX US, across 2 funding rounds from October 2021 to January 2022. The cost of our investment in FTX was 0.09% of our net portfolio value of S$403 billion as of 31 March 2022.
Statement on FTX – 17th November 2022
At this point, we can conclude that this investment is now worthless, given how the average investor can’t even squeeze a cent out of FTX. Hence in the whole long line of who gets paid first (in the event FTX manages to get out of this), shareholders in most instances are paid last.
With some context to the situation now in place, let’s debunk what I think are some myths I see on the internet.
Myth #1 – Is Temasek gambling away our CPF?
Upon seeing headlines such as the ones above, the reaction of some would most likely be along the lines of “@#*&! We trust G*** with our CPF and they take it and gamble it away like this …… ”
While that reaction is understandable, it is most certainly not valid as the very first myth that I’m debunking today is that,
Temasek does not manage CPF savings (which are managed by the Board of the Central Provident Fund), Government surpluses, or Singapore’s Official Foreign Reserves (which are managed by the Monetary Authority of Singapore).
Does Temasek manage Central Provident Fund (CPF) savings or Singapore’s foreign reserves?
Hence at the onset, for many of the ill-informed, the fate of Temasek has nothing to do with CPF, reserves or even issues related to tax revenues.
Myth #2 – We pay Temasek to manage our country’s money for what?
Many like to think that Temasek is a stat board/government body hence it is “bound” to serve the needs of the people. However, the truth is that Temasek is just another “company out there”. As such they do have their own CEO, Board of Directors etc.
On this note, the only party that they are answerable to is their shareholder. Note how ‘shareholder’ is singular as Temasek’s only shareholder is the Minister for Finance. (FYI that’s an entity not a person.)
Therefore, the extent of any gains or losses are pretty much its own business. While they do payout a dividend to their shareholder, it is not conclusive enough to say that their losses in FTX will cause this dividend to decrease as this is just one loss amongst many other wins.
Myth #3 – Temasek don’t know how to manage portfolio. How can lose so much money?
This is a fun one which we can break down into 3 parts.
- Temasek’s track record
- FTX investment relative to their entire portfolio
- FTX investment relative to specific US stocks in their portfolio.
1. Temasek’s Track Record
Temasek’s track record is undeniable.
On their own, the charts above show how well Temasek has performed over the years. Hence, while a loss is a loss, the FTX impairment alone is most certainly not compelling enough to deduce that Temasek is doing a bad job.
2. FTX investment relative to their entire portfolio
“Temasek lost a lot of money”.
US$275 million is definitely not a small amount. But to conclude that it is “large” relative to Temasek’s portfolio is also incorrect as they’ve come forward to say that “The cost of our investment in FTX was 0.09% of our net portfolio value of S$403 billion as of 31 March 2022.”
Ask any investor out there if they would budge if 0.09% of their portfolio was wiped out and they probably wouldn’t even blink. The only reason Temasek is blinking now is because of the public backlash surrounding the incident.
3. FTX investment relative to their US stocks.
In a language that we as investors understand better, did you know that Temasek’s investment in Snowflake is actually more than their investment in FTX?
Likewise, Temasek has more invested in stocks like Amazon, Alibaba, Block, Visa and Paypal than in FTX.
In comparison to their investment in Block which is Temasek’s largest holding, their investment in FTX is but a mere 10% of their total investment into Block. Taking this into perspective should give us a better idea as to where Temasek is really focusing their portfolio at.
Temasek can do “better”
It is unfortunate that Temasek’s loss in FTX would most certainly be used in arguments beyond that of financial discussions.
While much of the public remains in the dark with regard to the actual impact of this saga on the average Singaporean, readers should now find themselves better equipped to understand the situation better.
At the same time, while Temasek’s track record remains a testament to their capabilities, it is my opinion alone that there needs to be some accountability for this incident. Accountability not for the money that was lost but accountability in the scenario that FTX is guilty of “potential fraud”.
“In the FTX case, there are very serious allegations that amount to potential fraud even.”
In wake of FTX collapse, Lawrence Wong says Singapore ‘not open to crypto speculation at all’
In the event that FTX is guilty of fraud, it can be deduced that Temasek was taken for a “ride”. In which case how could that have gotten past their ‘8 months of due diligence‘?
Some food for thought.
I do agree with many of your points and while $300 mil may seem like a lot, it is just small change for Temasek. However, what I don’t agree is that just because Temasek is not using our cpf and reserves, that does not mean it is not our money! Where does the initial investment in Temasek come from? If you can say it does not come from Singaporeans at all, then our anger would be unjustified. It is like, if you put money in a bank and the bank earns interest on the money deposited, does the principal plus interest belong to the bank? Or to you as the depositor?
This write -up is great. Yes, the amount of S$377m is peanuts in the overall Temasek portfolio. The structure of Temasek ownership is Minister of Finance, a Govt of Spore as more for political expediency
to be beyond reach of any future political parties other than PAP.
The point I want to make is this. The investment of $377m in FTX has led many retail investors from Spore to dive into it as well. It is not a small retail amount as a survey has shown that Spore is next to S. Korea for the most significant signatures globally. Like the Hyflux case, Singaporeans are lured into it merely because of G presence, be it Temasek or otherwise. Not to link this saga to MAS esp in its response of FTX influence in Spore digital space is small, it is not, as survey has shown. Collectively, the response of MAS and Temasek involvement caused many Spore investors to lose their pants. Worse, as if it is not culpable, MAS has replied and washed its hands off the saga as ultra vires.