Temasek bets on US, Europe as geopolitical tensions grow

Temasek appears keen to build a higher profile in Europe and the Americas as it expands its investment footprint and the number of its developed market outposts.

It is a shift that may become more important amid a worsening geopolitical environment.

The S$382 billion ($289 billion) fund has over the years remained firmly anchored in Asia, which accounts for two-thirds of its portfolio by underlying exposure, but in the past decade its investments in both the Americas and in Europe, the Middle East and North Africa (EMEA) have doubled.

The Americas now account for the third-largest portion of its investments, at 21%, and EMEA, at 12%, is running neck and neck with Asia excluding Singapore and China, a region that accounts for 13% of its portfolio by underlying assets.

“The trends that we’re seeing involve a lot of technology, life sciences, which actually led us to look for opportunities in the US,” Temasek deputy chief executive Song Hwee Chia told reporters at the company’s annual results press conference in Singapore last week.

“That’s the reason who we decided to set up an office there and allocate more capital over the last seven, eight years to grow our portfolio over there. [Our increased allocation] wasn’t a specific target we set – it was just a bottom-up trend focus, and that's how our portfolio developed.”

INVESTMENT CONTROLS

Although Temasek’s increased investment in the US, and Western countries more generally, offers the company more regulatory certainty than other important markets such as China, from which it has retreated in recent years, foreign investment rules mean that the tack is not entirely without obstacles.

Temasek executive director and chief executive Dilhan Pillay Sandrasegara acknowledged that foreign investment regulation had proliferated worldwide and singled out the Committee on Foreign Investment in the United States (CFIUS), which regulates transactions involving foreign investment in the country, as particularly rigorous.

“In the US, clearly there are certain sectors where it is going to become more difficult for foreign investors to invest,” he said. “So far we’ve been able to get all our CFIUS approvals, [but] sometimes things take longer than before, so that itself is a cause for concern.”

ALSO READ: Temasek: Blended finance can make transition projects bankable

Sandrasegara was optimistic that approvals hurdles could be overcome, saying: “As long as you continue to engage regulators, whether it’s in the US, Europe, Australia or parts of Asia, as to what we're doing [and] how we're investing, [and] as long as we continue to be seen as a responsible investor, I think it's more challenging, but we'll still be able to deploy capital where we want it to be.”

In spite of the higher barriers, Temasek is opening its first Paris office this year, bringing the number of its offices in Europe and the Americas to seven from two nine years ago.

Sandrasegara said Temasek’s interest in Europe has been driven by a desire to access opportunities in particular focus areas among a wide range of potential investment targets.

GUIDED BY GEOPOLITICS

Aside from just financial fundamentals, Rohit Sipahimalani, Temasek’s chief investment officer, said an important aspect of Temasek’s strategy that emerged in recent years was applying a “geopolitical lens” to its investment decisions. He said that led the company to steer clear of jurisdictions around which tensions between the West and China were focused.

ALSO READ: Temasek posts worst returns in 7 years as it eyes AI, green transition

Such a strategy normally imposes opportunity costs on investors. But deputy chief executive Chia said that the fraught state of relations between China and the West, and the policies that have followed, were not entirely without upside.

“The national industrial policies of the EU and the US are promoting investment [and] they’re promoting manufacturing nearshoring or onshoring,” he said. “Those could bring opportunities for us, so they may not be all that negative.

“All these issues are mainly having second-order effects on our portfolio because our direct exposure to countries like China and the US is very much driven by domestic market demand,” Sipahimalani said. “For example, we do not invest in companies in China that rely on exports to the US or Europe, or rely on imports for supplies … from a direct exposure standpoint, we are OK.”

Sandrasegara said that the reversal of globalisation that has been gathering pace called for Temasek to adjust its investment strategy accordingly.

“Today, security and resilience take precedence over globalisation,” he said.

The story has been updated in paras 1, 3, 4 and 11.