Temasek Adjusts Investment Strategy Amid Rising Interest Rates
Temasek, based in Singapore, has notably reduced its investments in early-stage companies, a move influenced by rising interest rates and the challenges faced by state-run funds.
As one of the leading investors globally, Temasek appears more cautious regarding high-risk, non-public companies. This shift comes after the fund suffered substantial write-downs, notably from failed ventures like the Crypto Exchange FTX, where it was a significant backer, and Efishery, an Indonesian agritech startup that faced fraud allegations in the previous year.
According to a fund manager, Temasek’s investment strategy has hit a rough patch lately. “They are modifying their approach to enhance diversification and minimize volatility in revenue,” the manager noted.
Data from Tracxn indicates that Temasek’s investment in early-stage ventures plummeted from $4.4 billion in 2021 to just $59 million last year. Alongside this, the number of first-round investments dropped dramatically from 82 to only 11.
While Temasek will maintain some indirect investments in startups through venture capital funds, insiders suggest that its direct investments are now focused more on a smaller group of companies that are closer to going public.
Established in 1974 to oversee the investments of Singapore’s major domestic corporations, Temasek has evolved into a global investor over the past two decades, increasing its stake in private firms, which now make up a significant portion of its $300 million portfolio.
In recent years, Temasek’s overall performance has struggled to keep pace with the global stock market, posting just a 2% return for the fiscal year ending March 2024, compared to a 28% increase in the S&P 500 during the same timeframe, following a 5% drop the previous year.
The investment management team has concluded that the worldwide rise in interest rates has complicated fundraising for startups, hindering their paths to going public. Additionally, these financial challenges expose deeper issues within certain prominent startups.
In 2022, Temasek withdrew its planned $275 million investment in FTX after the crypto exchange declared bankruptcy. This event was particularly notable as many high-profile investors, including SoftBank and BlackRock, were involved.
Following a review of its investments, which highlighted reputational harm from Singapore’s Prime Minister Lawrence Wong’s earlier role as finance minister, Temasek docked salaries for its investment team and senior management.
Additionally, Temasek had invested considerably in Efishery, a startup that provided automated feeding systems for fish and shrimp farmers but came under scrutiny for inflating figures in financial reports, according to one of its founders.
Recent ventures supported by Temasek include Singapore’s e-commerce initiative Locanabio, Jane Therapy Company, Boston’s Pear Therapeutics, and Tessa Therapeutics in biotech.
While Temasek has had notable successes in early-stage investing—such as in Alibaba, Adyen, DoorDash, and the Indian food business Zomato—it now limits early-stage investments to about 6% of its portfolio. This is roughly half from direct investments and the rest through venture capital funds.
Temasek has expressed an awareness of the inherent risks and challenges that come with early-stage investments. “We acknowledge the difficulties and have adopted a more careful stance regarding new investments,” a spokesperson mentioned, reflecting on the market downturn in the early stages since 2022.
