Ho Ching, Temasek’s chief executive, said in a speech this week that she envisaged opening the SWF up to “sophisticated co-investors” in five to eight years and then retail investors a few years after that. Why? What are the implications? Let’s speculate.
As to the question of why Temasek would open up to private investors, this policy must be about transforming this fund into a truly commercial entity. In order to do this, Temasek will need 1) greater transparency and 2) greater distance from the Singaporean government. By inviting private investors into the fund, Temasek may achieve both.
No private investors will join up with Temasek as limited partners without first being able to kick the tires. ‘Sophisticated investors’ are no longer willing to trust remarkable track records in the post-Madoff era. Ho Ching undoubtedly understands this. Greater transparency, independent audits and accountability to non-Singaporean investors will also provide some distance from the government.
What are the implications? By inviting private capital into Temasek, the very nature of the institution may be altered. SWFs are by definition without external liabilities (beyond the broader government balance sheet), and they manage assets owned by the government in accordance with the interests and objectives of the sovereign. Depending on how this new co-investment policy is structured, Temasek could have a new set of non-governmental liabilities, and it would surely be managing private money. In this case, would we still think of Temasek as a SWF? As Gwen Robinson noted yesterday,
“But the biggest question is: if an SWF opens up to outside investors, particularly to foreigners, what, then, does an SWF become? Another long-only investment fund?”
Whatever we call Temasek in the future, opening up to private investors would necessitate fundamental changes to the institution and its governance. This fact is not lost on Ho Ching. I’ll be interested to watch developments.