Singapore’s Temasek cuts back on start-up investments

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Singapore’s Temasek is drastically reducing its investments in early-stage companies, because of interest rate rises and following some embarrassing blow-ups for the state-owned fund.

Temasek, one of the world’s biggest investors, has become more bearish on high-risk unlisted companies, believing it is harder for them to go public, according to people with knowledge of the group’s investment strategy.

The change in approach comes after it wrote down hundreds of millions of dollars on a spate of collapsed start-ups, including the crypto exchange FTX, where it was one of the biggest investors, and eFishery, an Indonesian agritech business that imploded last year under allegations of fraud.

“Temasek’s investment portfolio has taken some pretty big hits in recent years,” said a fund manager briefed on the group’s strategy. “They are changing their approach to get more diversity and also reduce the volatility of returns.”

Temasek’s investments in early-stage companies dropped from $4.4bn in 2021 to $509mn last year, according to data provider Tracxn, with just $70mn committed so far this year.

Over the same period, Temasek cut the number of first-round investments it made in unlisted companies from 82 in 2021 to 11 last year.

Temasek will continue to invest in start-ups indirectly through venture capital funds, but its direct investments have shifted to making bigger commitments to a smaller pool of companies that are closer to going public, according to people with knowledge of the approach.

Set up in 1974 to manage the Singaporean government’s stakes in the country’s biggest companies, Temasek has become a global investor over the past two decades. In that time, it increased its exposure to unlisted companies, which now make up just over half the value of the group’s $300bn portfolio.

Temasek’s overall performance has struggled to keep pace with global stock markets in recent years, with a 2 per cent return in its financial year ending in March 2024, compared with a 28 per cent rise for the S&P 500 over the same period, and a 5 per cent drop the year before.

The group’s investment management team has determined that the global rise in interest rates over the past few years has made it harder for start-ups to raise capital and hinders their chances of going public.

These funding difficulties have also exposed underlying problems at several high-profile start-ups.

Temasek wrote off its $275mn investment in FTX when the crypto exchange filed for bankruptcy in 2022. It was among several high-profile backers of the business, including SoftBank and BlackRock.

After a review of the investment, which Singapore Prime Minister Lawrence Wong said caused reputational damage in his role as finance minister at the time, Temasek docked the pay of the investment team and senior managers.

Temasek was also a big investor in eFishery, an Indonesian start-up that developed automated feeding systems for fish and shrimp farmers, but has been rocked by allegations of inflated sales and profits figures. One of eFishery’s founders told Bloomberg in April that he had put fake numbers into the group’s financial report.

Among other failed Temasek-backed start-ups in recent years are Zilingo, a Singaporean ecommerce venture, gene therapy company Locanabio, Boston-based Pear Therapeutics and biotech Tessa Therapeutics.

Temasek has also had several successful investments in early-stage companies, including Chinese ecommerce group Alibaba, Dutch payments business Adyen, US food delivery company DoorDash and Eternal, the Indian business that owns Zomato. 

Early-stage investments are now capped at 6 per cent of Temasek’s portfolio, with about half of its exposure through direct investments and the rest through venture capital funds, the company said in a statement.

“We are cognisant of the risks and challenges early-stage companies face and accept the binary risks that come with investing in them,” it added.

“We have seen a market pullback in investment flows into early-stage investing since 2022 and, as a result, have adopted a more cautious approach to new investments.”