Money Money Money!

I noticed this in a recent press release.

While 100-per-cent owned by the Singapore Government through the Minister for Finance Inc, Temasek operates as a private investment company. Assets within our portfolio are owned by the firm, and are not part of a fund per se.

One moment Temasek Holdings admits it is owned by the Singapore Government, the next, it says its assets are owned by the firm. So i wonder, what is 100% owned by the Singapore Government if they are not assets?

Confusing financial terms that I barely understand aside, here's a little peak into the background of Temasek Holdings which clarifies matters a little (btw, this website lists Temasek Holdings as a SWF as do many)

In the 1960s the Government of Singapore already had direct stakes in local industries. The Ministry of Finance established Temasek Holdings in 1974 to manage these assets.

As the years progressed, Temasek began to diversify its holdings from the local Singapore market, to other surrounding countries.

So... Temasek Holdings is just a proxy for the Ministry of Finance to manage their assets, and is still fully owned by the government. How then does the claim that they are not owned by the government then stand? Or how can it say that it is not accountable to the Singapore Government?

Either someone's not being too transparent about things here, or we're all in deep shit. Think about it, if our money goes to Temasek Holdings, yet the Singapore Government has no means of ensuring that this money is wisely spent, essentially we're letting the "autonomous" people on the board play around with our money. And that's assuming that they are truly autonomous in the first place. I don't think Ho Ching, the executive director of Temasek Holdings, who also happens to be Lee Hsien Loong's wife would be exemplary of autonomy.

But more importantly, the feeble attempt to clarify how Temasek Holdings is not a Sovereign Wealth Fund not only doesn't work, but is also counter productive.

For one, many countries do see Temasek Holdings as a government run SWF, just look at all the recent media reports about SWFs saving companies from the Sub-prime crisis, Temasek Holdings is an oft-cited example of a SWF. And in fact there's a pretty good reason why they do so! They're the experts after all. So I doubt these countries will be swayed by a simple media report.

So, who are the people the government is trying to fool? I can only conclude that it's the U.S. and all the future countries Temasek Holdings plans to invest into. After all, not being a SWF means that Temasek Holdings would not have to be as transparent as the new international agreements suggest.

Yet, I can only think of two responses by such a blatant move.

The first would be disbelief. As I mentioned earlier, it's pretty obvious that you're run by the government when you're 100% owned by it, and further so because Ho Ching is in charge. Regardless of this, that's the way popular public perception is anyway, so it's going to take more than assertions to change this.

But the second and response that comes later... Oh that'll be nasty. With all the ongoing fears in so many countries about how SWFs are going to take over their corporations, one can only imagine the kind of backlash that'll occur once people start questioning the intentions of this recent move to remain opaque.

I mean, it's pretty dubious isn't it. Fully government owned, clearly a SWF, yet doesn't want to admit it. Does Temasek Holdings have something to hide? Assuming we want Temasek Holdings to be riskily investing our money all over the world in the first place (cough, UBS, cough), this surely isn't a confidence raising move that will give us more investment opportunities.

Yet again, such a conclusion might be hasty. As Managing Director of Corporate Affairs suggests in his letter,

The triple-A credit ratings that Temasek has received reflect the strong fundamentals and balance sheet strength of Temasek.

In conferring their ratings, the rating agencies are aware that the Singapore government does not guarantee Temasek's loans.

It's a pity though that triple A credit ratings refer to how credit worthy Temasek Holdings is, i.e. it's capacity to repay and service debt, and not whether it is a SWF or not. This attempt to obfuscate readers is inconceivable.

To further prove my point, let's take a look at where this triple A credit rating was obtained from. According to the Temasek Holdings own website, there are two credit ratings, AAA from Standard & Poor's and Aaa from Moody's. So let's just look at how Standard & Poor's determines their credit rating (somehow I can't seem to access Moody's, can't be bothered anyway)

Issue credit ratings are based, in varying degrees, on the following considerations:

* Likelihood of payment—capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
* Nature of and provisions of the obligation;
* Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.

And this is what AAA means

An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.

Any sign of AAA referring to Temasek Holdings as not a Sovereign Wealth Fund? Yes? No?

Then let's look at what really should be a better indicator, Transparency Ratings. Yes this, and not irrelevant credit ratings. According to this website that judges the transparency of a country on a relatively simple scale of 1-10, with a recommended minimum rating of 8 in order to claim adequate transparency, so here's a look at some key countries and their SWFs.

GIC got a 6, Temasek Holdings got a 7, all 4 USA SWFs got either a 8 or 9, while Iran has a 2, Saudi Arabia a 4 and China a 2.

While Singapore does seem ahead of other countries, more can certainly be done in terms of transparency. And people don't magically see you as transparent if you release such obfuscating media reports claiming that Temasek Holdings is not a SWF.

Finally, the devil's disclaimer at the end of the article that the Singapore Propaganda Machine never fails to include.

This ultimately benefits Singapore and its people, through the dividends we contribute to our shareholder, the taxes we pay and the appreciation of our asset base.

It's the usual, "even if I play around with your money without being too transparent to you, at the end of the day it's for your own good!" Apart from the fact that there's a subtle notion of paternalism, I don't really see how this works.

If we lose investment opportunities because countries become skeptical of Temasek Holdings, I don't really see how any of the above will happen. Instead, if we are so reliant on Temasek Holdings, by golly, shouldn't they be accountable to our government.