Christopher Balding of HSBC School of Business writes this riveting piece. He titles this paper interestingly as - “Brief Research Note on Temasek Holdings And Singapore: Mr. Madoff Goes to Singapore”.
The paper makes two points.
First, there are some issues with Temasek’s financial reporting. It seems to be showing a much higher return on its portfolio since inception than most of the equity indices in the period.
Second, there is this interesting puzzle. Singapore has been running high fiscal surpluses but its public debt keeps going up. Perhaps the only country in human history to have such a record:
Financial data reported by Temasek Holdings and Singapore reveal problematic characteristics. First, Temasek reports an average annual return of 17% for 35 years despite Singaporean stock returns averaging less than 8% during this same time period. Given the range of stock market returns and its portfolio companies’ returns, it is highly improbably that Temasek has earned the returns claimed in its annual reports.
Second, Singapore has become one of the most indebted countries in the world despite supposedly running large and sustained government surpluses. Given publicly available economic data on Singaporean finances, there is a minimum of $350 billion SGD or $275 billion USD unaccounted for from historical surpluses and financing operations. Third, given these results I find that for every $1 SGD in public borrowing, Singapore has received only 25 cents of publicly held Singaporean assets. Either financial returns have been drastically overstated or there are large unreported Singaporean controlled holdings.
The paper is based on 2010 Annual Report. I checked the website and they maintain their claims of 17% TSR since inception.
The analysis of Temasek and Singapore govt finances points to two scenarios:
Scenario #1: Assuming Temasek Returns and Singapore Finances Are Perfectly Accurate
1. Temasek has established the greatest institutional track record of investment, possibly, in the history of human existence.
2. Singapore maintains large unreported asset holdings that by conservative estimates could top $1 trillion SGD or $800 billion USD from accumulated historical budget surpluses and financing operations.
3. Given the current estimate of $650 billion SGD of combined assets under management between Temasek and GIC, this results in an upward revision of assets under management by at least $350 billion SGD or $275 billion USD. Given numerous assumption parameters, this should be considered a very conservative estimate.
Scenario #2: Assuming Temasek Returns and Singapore Finances Are Not Perfectly Accurate
1. Temasek is reporting inflated returns by using methods that do not represent standard accounting practices.
2. Singapore has inaccurately reported public finance data on revenue, expenditures, surpluses, total outstanding indebtedness, and asset holdings to bolster its perceived credit risk and the state of its public finances.
3. Either by over reporting surpluses and the returns earned or underreporting its total assets, Singapore and the two sovereign wealth funds under its management have not accurately accounted for its finances to the public. The amount of the missing funds should conservatively be estimated $275 billion USD or $350 billion SGD. The missing funds may be located in a variety of places such as in poor investments returns or unreported asset holdings.
Going by the analysis, Scenario 2 is more probable:
In short, due to the large government budget surpluses and the increased debt, it seems highly improbable that the current numbers published by the Singaporean government and markets can be reconciled either to external data or to each other. If investment returns and public finance data is accurate, there must be an enormous pool of unreported assets controlled by the Singaporean government. If investment returns and public finance data as currently published is inaccurate, this represents a serious problem.
Thus her titles the paper on Madoff lines..
These are serious claims and Temasek is a big brand (atleast in Asia). I hope there are clarifications from Temasek and SG govt. This point on why SG runs higher public debt levels (around 98% of GDP just like GIPS economies) despite having surpluses needs to be explored further. I am actually surprised to see that hardly anyone points to this anomaly..