Strategically Commercial Investing

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Singapore’s sovereign fund Temasek increased its holdings of the American fertilizer company Mosaic, bringing the total value of the sovereign fund’s position to roughly $1 billion and making it the single largest investor. Given the growing interest of sovereign investors in agricultural assets and food security, I wasn’t all that surprised to receive an email this morning asking whether I thought this specific investment was ‘strategic’ or ‘commercial’ in nature. My response: “Both.”

To understand why, I thought it useful to first give you some background on Temasek and then offer some reflections on “strategic” investing more generally. On Temasek, let me turn your attention to a paper by Wilson Ng:

“Temasek is a highly active form of sovereign wealth fund that makes equity investments in Singapore’s national interests. Temasek’s State sponsors understood that national interests would comprise both commercially-driven and non commercial criteria, and that those interests had to be pursued internationally…Temasek is a corporate investor with a genuine commercial interest in high-growth businesses both in developed and in emerging markets; but it is also an investor with a deep interest in acquiring large stakes in industries that will benefit Singapore’s competitiveness…Unlike other sovereign wealth funds that typically prioritize either commercial or political objectives, Temasek seems to have embraced both objectives in advancing Singapore’s national interests.”

Let’s also take a look at this (really good) paper by Henry Yeung of the National University of Singapore:

 “In the new millennium, Temasek Holdings has become more strategic in its investment focus. Its strategic plan is now committed to investment in new strategic or risky ventures (e.g. life sciences and water resources), in companies that would bring foreign skills and technology and access to foreign markets, and in nurturing global or regional leaders from its stable of companies or other non-Temasek Singapore firms…Meanwhile, its divestment policy continues unabated in areas outside its strategic plan because Temasek Holdings wants to concentrate its scarce management resources on those new growth areas.”

In short, Temasek makes investments to advance strategic national interests. At the same time, however, its over-arching objective remains commercial and financial success. In other words, the strategic objective of Temasek…is commercial in nature. Recall that Temasek is the holding company for Singapore’s government linked companies (GLCs), which means that the fund may be considering its portfolio companies in its investment decisions.

This reminds me of another type of investor that I’ve often thought of as ‘strategically commercial’: family offices. Indeed, many family offices operate according to a similar ‘double bottom’ line to the one espoused by Temasek; they want investments that will make money on an absolute basis, but they also want to support companies and industries that will help them with their core operating companies — i.e., the companies that made them rich enough to warrant setting up a family office in the first place.

In sum, ‘strategically commercial investors’ base their investment decisions on purely commercial objectives. However, these commercial objectives are broader than the typical financial investor. In a way, these strategically commercial investors are picking investments also based on added benefits to their other operating companies.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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