Does Temasek return empty-handed after suffering from a downturn in the encryption field and achieving its worst performance in 7 years?
Original author: flowie, ChainCatcher
On Tuesday, Singapore sovereign wealth fund Temasek announced its worst performance in seven years. In its 2023 fiscal year report ending on March 31st, the net value of Temasek's investment portfolio dropped by 5.2% to SGD 382 billion (USD 284 billion), marking its first net loss since the 2020 fiscal year. Additionally, as of March 31st, Temasek's annual total shareholder return rate was -5.07%, the worst annual performance since 2016.
Source: Temasek Review 2023 - Summary
While Temasek attributed these results to factors such as economic recession risks, rising interest rates, and geopolitical tensions, the failure in the crypto field cannot be ignored either. On the day of releasing the financial report, Temasek's Chief Investment Officer Rohit Sipahimalani stated in an interview with CNBC that the company currently has no plans to invest in cryptocurrency companies due to regulatory uncertainties in the crypto industry. Sipahimalani also added, "We have never thought about investing in cryptocurrencies. Even in the case of our investment in FTX, we are referring to investing in the exchange, which allows us to obtain fee-based income without considering the balance sheet risk or any trading risks."
As the most influential sovereign wealth fund, Temasek's attitude towards encryption also has a certain significance as a barometer. From around 2018, when it officially ventured into blockchain through investments and entrepreneurship, to the recent defeat on FTX for 275 million US dollars, leading the way in venture capital accountability, and now announcing a temporary withdrawal from cryptocurrency investments, is Temasek really going to be defeated in the field of encryption?
The Web3 Journey of Singapore's Strongest State-Owned Enterprise, Investing and Entrepreneurship Go Hand in Hand
Temasek was established in 1974 and is 100% state-owned by the Singapore Ministry of Finance. It is also the most well-known among all Singapore government-owned companies. Temasek controls almost all of Singapore's most important and highest-earning companies, including Singapore Telecommunications, Singapore Airlines, DBS Bank, and the Singapore Mass Rapid Transit System. It can be said that it dominates the economic lifeline of Singapore. However, despite being government-controlled state capital, the government does not directly manage the enterprises and follows a market-oriented operation.
An important turning point in Temasek's rise was the appointment of Ho Ching as CEO in 2004. At that time, Temasek was already declining due to the aftermath of the Asian financial crisis and the global economic recession following 9/11. Although Ho Ching was controversial because of her identity as the wife of Singapore's Prime Minister Lee Hsien Loong, under her leadership, Temasek truly embarked on the road of expanding its massive capital empire and opened up a transparent system of public financial reports, increasing its expansion pace. Temasek's net portfolio value has increased from USD 90 billion when Ho Ching took over to approximately USD 280.4 billion (as of the end of March 2021).
Temasek has long been deservedly recognized as a massive capital empire. According to its FY2023 annual report, as of March 31, 2023, Temasek's net portfolio value was SGD 382 billion, with major investments in the transportation and industrial sector, financial services, telecommunications, media and technology, consumer and real estate, life sciences and agribusiness, and diversified funds. In the telecommunications, media, and technology sectors, Tencent, Alibaba, and Meituan are among its major investment representatives. In the financial services sector, BlackRock, Mastercard, PayPal, ICBC, CCB, Ping An Insurance, as well as Standard Chartered Group and DBS Group are its major investment projects.
Source: Temasek Annual Report 2023 - Summary
Under the investment concept that leads the trend of social development, Temasek officially joined the wave of blockchain and Web3 around 2018. It not only invested in this field but also co-founded blockchain companies with partners.
According to public reports, by the end of 2018, Temasek had invested in enterprise blockchain software companies and the global banking consortium R3. Its venture capital department, Vertex Ventures, made a strategic investment in Binance (the official website shows that it has exited).
At the same time, Temasek identified blockchain and artificial intelligence as "foundational technologies" that can achieve global digital disruption and established corresponding teams for development. Mr. Pradyumna Agrawal, the then Managing Director of Temasek Investments (Blockchain), gave up his position as a director in Temasek's Financial Services investment team and officially formed a blockchain team to establish Affinidi, which focuses on portable and verifiable digital identity and certificates.
In terms of investment, Temasek mainly invests in mid-to-late stage leading projects. However, for early-stage projects, Temasek established the early-stage Web3 venture capital fund, Superscrypt, in 2022. Superscrypt operates independently and focuses on investing in infrastructure and emerging use cases, such as wallets, identity and credentials, developer tools, data indexing and search, scalability, and privacy.
As of now, according to the statistics from the cryptocurrency data platform RootData, Temasek has announced nearly 7 investments in the blockchain field. Most of these investments are in well-known projects in the crypto field, including FTX, FTX.US, Amber Group, Immutable, ConsenSys, Animoca Brands, among others. Temasek is the lead investor in its investments in Animoca Brands, Immutable, and Amber Group.
Source: RootData
And Temasek's early Web3 venture capital fund, Superscrypt, has a faster investment pace. Since its establishment in 2022, it has invested in nearly 20 projects, mostly in infrastructure projects, with representative projects such as Aptos and Safe. It is worth mentioning that after the FTX incident, Superscrypt's investment pace did not significantly slow down. Since 2023, it has made 12 investments, basically 2-4 investments per month.
Source: RootData
In addition, Temasek once held about $2.1 million worth of Coinbase stock ownership in the third quarter of 2021, but sold all of it in the fourth quarter. In addition to participating in Binance's strategic investment in 2018, Vertex Ventures, a subsidiary of Temasek, also led a $4 million financing for decentralized identity project Carv at the end of 2022.
In terms of founding blockchain companies, in addition to establishing Affinidi, which focuses on portable and verifiable digital identity and certificates in 2018, Temasek also jointly created the blockchain platform Partior with JPMorgan Chase and DBS Bank in 2021, dedicated to improving global cross-border payment pain points. Currently, blockchain, artificial intelligence, network security, data and digitization, and sustainable solutions together constitute the "Temasek Operating System," promoting innovation and growth in the Temasek ecosystem.
However, although actively participating in the wave of blockchain development, Temasek also stated on its official website that the rise of the blockchain and digital asset industry brings countless opportunities but also significant risks. This is why Temasek has decided to deploy both through the creation of enterprises and investments in this blockchain field.
For the focused blockchain field, Temasek stated:
In creating blockchain enterprises, Temasek focuses on programmable currencies, tokenization of digital assets, as well as decentralized identity and data. Some of these entities are not based on blockchain at the current stage but rely on this technology and emphasize the implementation of open data solutions and open networks.
In blockchain investments, Temasek mainly concentrates on: financial market service providers, providing protocol-independent and market-neutral investments for the digital asset field; and technology infrastructure, including protocols, wallets, developer tools, cross-chain information transmission, metaverse, and game infrastructure.
$275 million investment, initiating venture capital accountability
What truly brought Temasek into the spotlight of the cryptocurrency field is likely the investment in FTX. However, it is also this investment that damaged Temasek's reputation and initiated venture capital accountability.
According to Temasek's official statement, Temasek invested approximately $275 million in FTX and FTX US. In two rounds of financing from October 2021 to January 2022, it invested $210 million in FTX, holding about 1% minority equity, and invested $65 million in FTX US, holding about 1.5% minority equity. The cost of investment in FTX accounts for 0.09% of Temasek's total investment portfolio net value of SGD 403 billion as of March 31, 2022. After FTX's debacle, Temasek fully wrote off its investment. According to Forbes statistics, Temasek, along with Sequoia Capital and Paradigm, were the three largest investment institutions that suffered losses in the FTX incident.
Due to the many controversies surrounding FTX, Temasek, as a key investor and due to its nature as a state-owned capital, faced strong accountability. In late November last year, the Singaporean Parliament conducted a special discussion on the investment failure of Temasek, a holding investment company responsible for regulation by the Singaporean Ministry of Finance, in FTX.
Singapore Deputy Prime Minister Lawrence Wong even condemned in Parliament that the incident involving FTX not only caused financial losses to Temasek but also damaged its reputation. Lawrence Wong revealed that after announcing a write-down of up to $275 million in FTX investment, Temasek has also officially launched an internal review, which will be carried out by an independent team and aimed at "studying and improving its processes and learning from the experience." The team will report directly to the board, representing an "upgrade" to Temasek's regular review process.
As the FTX investment occurred during Ho Ching's term, she also responded on Facebook, stating, "FTX is not just about market fluctuations. It reminds us that having good goals is not enough; we also need to maintain a clear mind in assessing risks."
In its retrospective statement on the FTX investment, Temasek stated that its investment logic was to invest in a leading digital asset exchange. The exchange generates revenue through a transaction fee model and has no directional trades or balance sheet risks, providing us with exposure to the crypto market that is unrelated to protocols and market neutrality. Temasek added, "There is a misconception in the market that our investment in FTX is an investment in cryptocurrencies. We want to clarify that Temasek currently has no direct investment in cryptocurrencies." Regarding its due diligence process, Temasek stated that it took about 8 months from February to October 2021 to conduct investigations into its finances, team, and regulatory risks.
In late May this year, the Chairman of Temasek released a statement regarding the internal review of the FTX investment transaction. In summary, investments come with risks, and FTX concealed information from Temasek and other investors, engaging in fraud. However, the Temasek investment team did not engage in any misconduct in the process of making investment recommendations. Nevertheless, despite the absence of misconduct, the investment team and senior management responsible for investment decisions bear collective responsibility and have taken a collective pay cut. To a certain extent, Temasek has initiated accountability in venture capital.
Claiming to pause crypto investments, is Temasek really exiting altogether?
The implosion of FTX marks a major turning point for Temasek's tightening of crypto investments. Temasek now explicitly states that it does not intend to invest in cryptocurrency companies in the current regulatory uncertainty surrounding the crypto industry. Since the FTX implosion, Temasek has indeed not announced any further crypto investments, with the latest investment being the blockchain platform Partior announced in November 2022, as mentioned earlier, which is also a subsidiary created jointly by Temasek, J.P. Morgan, and Standard Chartered Bank.
Although Temasek, the main body, temporarily withdraws from cryptocurrency investments, there is no further statement regarding whether its independent operation, the early Web3 venture capital fund Superscrypt, also suspends cryptocurrency investments. Since 2023, Superscrypt has made 12 investments, with the latest announced on June 30th, and a total of 4 investments made in the entire month of June. Superscrypt has also been relatively low-key, with little statement about cryptocurrency perspectives on its official website and Twitter, except for updates on investment projects.
In fact, Temasek has always been cautious about cryptocurrency investments. In 2021, CEO of New York Digital Investment Group (NYDIG) Robert Gutman and the founder of Real Vision revealed that Temasek has started to buy Bitcoin, especially Bitcoin directly from miners. However, Temasek later declared that it does not own Bitcoin, but actively participates in blockchain investments and is looking for emerging opportunities in the industry. Recently, on the occasion of the release of the 2023 financial report, Rohit Sipahimalani, Chief Investment Officer of Temasek, once again emphasized, we have never considered investing in cryptocurrencies.
In addition to repeatedly denying direct investments in cryptocurrencies, Temasek has also denied investments in certain crypto companies multiple times. For example, in 2018, Temasek denied participating in the pre-IPO financing of Bitmain. In May of this year, regarding the statement "Array, an algorithmic currency system developer based on smart contracts and AI, raised $10 million investment from Temasek with a valuation over $100 million," Temasek also issued a statement denying it.
Furthermore, in the past two years, reports about Temasek's participation in cryptocurrency investment funds have not been confirmed, such as the joint establishment of a blockchain fund worth billions of dollars with giants like Google and Blackstone, and the participation in a $500 million crypto venture fund of the venture capital firm Hack VC. There has been no follow-up on these reports.
Today, as Temasek announces its temporary withdrawal from cryptocurrency investments on the occasion of the release of the 2023 financial year report, it may serve as a warning that the narrative of traditional major financial institutions entering the crypto market with huge capital potential is likely a fantasy in the current context of limited technological innovation in crypto itself and incomplete regulations.
