Temasek’s key role in a €1.28bn pre-IPO investment in ING Group’s NN insurance business demonstrates an increasingly common trend: emerging market sovereign wealth funds (SWFs) renewing their faith in the developed world by investing heavily in Western assets. To some observers it also reveals doubts about the short term prospects in Asia itself, in part as a result of declining Chinese growth.
Temasek operates under one of the most emerging market-heavy target allocations of any SWF in the world: a 40:30:20:10 target within which 40% is Asia ex-Singapore, 30% is Singapore, 20% is OECD countries and 10% other, which in practice chiefly means Latin America and Africa. It cemented this position after disastrous financial crisis investments in big Western banks, which it exited at close to the bottom of the market.
But, while recent investments like an offer for the outstanding shares in Singapore-based global soft commodities group Olam have shown a continuing interest in emerging markets, there has been a growing sense that Temasek sees renewed opportunity in the West, particularly Europe. When most recently disclosed, mature economies accounted for 25% of the portfolio, a considerable overweight relative to its long term 20% target allocation.
In March, Temasek CEO Ho Ching announced the setting up of a dedicated Europe office in London. A New York office is to become fully operational later this year, marking a departure from previous priorities such as Mexico and Brazil.
Also in March, Temasek invested $5.7bn in a 24.95% stake in AS Watson, which is technically Asia-based (it is a subsidiary of Hutchison Whampoa) but is also a key European retailer, the largest health and beauty group in the Benelux region. Other Temasek holdings in Europe include a 6% stake in Repsol, 18.2% of Standard Chartered, 4.6% of Evonik Industries, and holdings in Lloyds Banking Group and Markit Group.
CIC turns west too
Temasek is not the only Asian SWF to start looking west. China Investment Corporation, which like Temasek was badly burned by investments in Western institutions like Morgan Stanley, has focused for many years on commodity and energy plays, often in frontier markets such as Mongolia. But it too is setting up Europe and New York investment offices, and has been increasing stakes in US real estate businesses such as General Growth Properties and Rouse Properties. A new chairman, Ding Xuedong, took over the fund in June 2013 and spoke in January of Europe having “a lot of potential”. In recent years, the fund has shown an interest in European infrastructure, buying stakes in Thames Water and Heathrow Airport.
The most recent disclosed investment by Singapore’s other sovereign wealth fund, GIC, was in Intelligent Energy, a global group headquartered in the UK.
The trend appears to reflect renewed confidence in the recovery of the developed world and doubts about the near-term prospects in Asia itself, particularly on the back of declining Chinese growth.
Asked for comment, Temasek referred Emerging Markets to a speech by chairman Lim Boon Heng last month. He said the opening of offices in London and New York “does not indicate some radical shift in our approach”, but added: “We see long term opportunities in a rebalancing world.”