Temasek and Singapore Puzzle – Is it another Madoff crisis in making?

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..

13 Responses to “Temasek and Singapore Puzzle – Is it another Madoff crisis in making?”

  1. Data Says:

    I read this paper as a layman, and even then it seems to have many flaws. I would not put too much stock in what it says. As they say, extraordinary claims need extraordinary proof.

    1. According to Warren Buffett’s latest letter to shareholders and my calculations, Berkshire Hathaway’s book value per share grew 21.5% annually from 1974 to 2011 (annual returns for the S&P 500 including dividends was 10.5%). Buffett may be unusual but he is surely not the only one who could have achieved such results; many companies have grown at a rate of that much or more too. A compound annual return of 17% is hardly “the greatest institutional track record of investment, possibly, in the history of human existence.” Hyperbole.

    2. It is true that Singapore’s debt to GDP ratio is high. In fact the debt ceiling was recently increased from S$320b to S$490b. In a parliamentary speech it was said that the outstanding amount of debt as at end 2011 was S$295b. GDP as of end 2011 was about S$326b.

    But what appears high actually is not. S$200b-plus of that debt is owned by the Central Provident Fund, the compulsory national pension and health care savings fund. The rest, some S$85b, is issued to make markets and are largely held by institutions. Judging from the yield of 1.63% for the 10-year bond, or the AAA sovereign ratings from the 3 agencies, the market is not too worried about the sustainability of the debt.

    In a sense, this high level of indebtedness comes from the mandated high savings rate through the CPF. Singaporeans save a lot, and this is expressed as the government’s debt. The government is borrowing (quite cheaply) from the public and private investors and investing it through Temasek and GIC. It is quite puzzling that the author can claim that this indebtedness is shocking and worrying, not understanding this basic aspect of the government’s finances. It is suggestive.

    3. Taking the figure of 17% annual returns and Temasek’s current portfolio size of some $200b, and comparing it with at least the last 10 years’ budget surpluses, the author assumes that ALL money from surpluses parked with Temasek must earn that 17% and so the reported portfolio size is too small i.e. missing money. Isn’t it obvious that the government can add new money to Temasek which gets lower returns? In fact, Temasek reports that it got a return of 9% for the last 10 years.

  2. Christopher Balding Says:

    Data. as the author of this paper I thank you for reading the paper but I would encourage you to read it closer as most of your points are already covered. None the less, I will briefly address them.

    1. Warren Buffet is EXTREMELY abnormal that is why he is Warren Buffet. That is why it is so abnormal the returns claimed by Temasek. Look at other major financial firms that have been traded over similar periods of time and you will see just how abnormal their returns are. When you look at the major world indexes US, UK, Germany, Tokyo, Hong Kong, and the Singapore indexes, the annualized average (different than a simple average which skews the data upwards) for most is 7-8% with Hong Kong at 10%. Temasek is not just claiming to beat even its own countries index, of which it is the major owner, but obliterate the average. That simply isn’t statistically possible.

    2. You are partially correct that the Provident Fund owns the debt but you miss a major part of the story. A major source of the debt is Singaporean state owned corporations….owned by Temasek. What is so worrying is that while Singaporean state owned companies have borrowed so much more money, their earnings per share haven’t increased in line with borrowing. In other words, they are borrowing more and more to make the same or in some cases less money. That is not a good trend.

    3. If you will read the report in its entirety you will notice that I say that I use 1991 as the baseline and not 2001. Temasek claims that since 1991 they have earned 16% annually. The figures I present are based upon their budget surpluses since 1991 with the 16% annually as they state in their report. That is not my figures but theirs.

    The bigger problem is that even if the 17% is proven to be absolutely correct, which is doubtful, Singapore still cannot account for the nearly 30 years of continuous surpluses. If the 17% is correct that is equal to $750 million of roughly their budget surplus in 1981. Given the time value of money they would only need one or two other years to fully fund Temasek assuming the 17% claim is accurate. That means the remaining 30 years of budget surpluses have vanished.

    Even if the 17% is perfectly and completely accurate, Singapore still cannot explain the disappearance of 30 years of budget surpluses.

  3. leo Says:

    what about the approx. S$300 billion fx reserves that is managed by the central bank, which is separate from GIC and Temasek’s assets?

  4. leo Says:

    also, could you clarify the origin of this claim – “Approximately 80% of publicly held debt in Singapore is attributable to state owned enterprises while only 18% is attributable to the government.”

    IMF says Singapore’s debt-to-GDP is a shade over 96% in 2010 – which works out to about S$298 billion of public debt (given GDP of about S$310 billion). the Central Provident Fund, according to its 2010 annual report, invested S$176.7 billion in Singapore Govt Securities, which accounts for close to 60% of the public debt.

    could you explain this discrepancy?

  5. The Mess that is Singapore: Part I Explaining the Debt | The Balding Blog Says:

    […] since my paper on Temasek and Singapore was covered in Mostly Economics writing a plea for “clarifications from Temasek and SG govt”, I have begun receiving […]

  6. Singaporean Says:

    Dear Prof. Balding,

    Many Singaporeans are sceptical about Temasek / GIC and the way Singapore’a reserves are managed.

    The official Singapore Government explanation about the scepticism is at

    I wonder what is your position re: Singapore Government’s explanation?

    Also, you mentioned about returns. How about risk adjusted returns? Isn’t that equally if not more important than absolute return?

    Look forward to hear from you.


  7. kilroy Says:

    I don’t doubt that the TH’s returns are correctly calculated. But they are not a good gauge of the value added by the new mgt team installed by HC after she assumed leadership. The changes in investment strategy and tactics ( less of a “portfolio” approach as adopted by other SWFs and large pension and endowment funds such as Calpers, Norwegian SF etc and more of a “:focused opportunistic and trading” approach ) occurred after a review by management consultancy Bain & Co. Following this review, an entirely new team was recruited and installed. Indeed the lead consultant from Bain joined TH. The majority of the new hires had investment banking/stock brokering background and experiences but there was a sprinkling of ex-corporate types such as Simon Israel. And of course there were the second career ex uniformed scholars, or politicians in waiting too e.g S Iswaran, Lim Hwee Hua. The fairer way to evaluate the competence of this new team is exclude returns from selling out or privatising of legacy assets ( the gains from these would have been substantial e.g sale of the power stations, privatisation of Singtel, SIA etc ) which this team inherited and rate them solely on returns on the assets which they bought/traded since the beginning of their tenure ( a 35 year CARR is therefore misleading…a 10 year return would be more accurate ). Then the figure would not be such an outlier even if negative. Or perhaps not…?

  8. Macy Says:

    “The fairer way to evaluate the competence of this new team is exclude returns from selling out or privatising of legacy assets”

    My question is why should we be interested in evaluting the the competence of the new team in layman’s concern ? What we are really interested is the actual “TRUE” performance over the years, and the accountability of the profit/loss over the years. The team are internal to TH , and beside TH is shrouded in secrecy, and thus no one really care .. Chris has indicated in his blog comments that he is not even granted interview to hear TH’s side of story. As so far, there is total lack of accountability of TH and GIC to the public over the investment. Asking question in parliament which give no answer is not accountability.
    Just because they make TH a private company which make use of public money and not to disclose much info doesn’t make it anymore accountable to the public.
    “People do want to know, there is curiosity, it is a matter of public interest. That is not sufficient reason to disclose information. It is not sufficient that there be curiosity and interest that you want to disclose information.” tharman over goodyear’s resign

  9. debt help Singapore Says:

    After I originally left a comment I seem to have clicked the -Notify me when new comments are added- checkbox and now each time a comment is added
    I get 4 emails with the exact same comment. Perhaps there is
    an easy method you can remove me from that service? Cheers!

  10. Rhea Says:

    Howdy! This article could not be written much better!
    Going through this article reminds me of my previous roommate!
    He continually kept preaching about this. I’ll send this article to him. Pretty sure he will have a very good read. Thank you for sharing!

  11. How much reserve do Singapore really have? | Says:

    […] Temasek and Singapore Puzzle – Is it another Madoff crisis in making? […]

  12. Questions on Singapore’s nationwide/ public wealth fund Temasek | Posts Says:

    […] abstract of this paper is offered here. In short, the concept Tamasek has achieved 17 per cent return over 35 years is refuted […]

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