Temasek returns empty-handed after posting its worst performance in 7 years and claiming to temporarily withdraw from crypto investments?

Written by: flowie, ChainCatcher

On Tuesday, Singapore's sovereign wealth fund Temasek announced its worst performance in seven years. In the 2023 fiscal year report for the year ending March 31, Temasek's portfolio net worth shrank by 5.2% to S$382 billion (approximately US$284 billion), marking the first net loss since the 2020 fiscal year. Additionally, as of March 31, Temasek's annual total shareholder return was -5.07%, the worst annual performance since 2016.

Source: Temasek Annual Report 2023 -- Summary

Although Temasek attributed this result to factors such as economic recession risks, rising interest rates, and geopolitical tensions, its setbacks in the crypto space cannot be overlooked. On the same day the financial report was released, Temasek's Chief Investment Officer Rohit Sipahimalani stated in an interview with CNBC that given the regulatory uncertainties in the cryptocurrency industry, Temasek currently does not plan to invest in cryptocurrency companies. Sipahimalani also added, "We never considered investing in cryptocurrencies. Even our investment in FTX was essentially an investment in the exchange, which allowed us to earn fee-based revenue without considering balance sheet risks or any trading risks."

As one of the most influential sovereign wealth funds, Temasek's attitude towards crypto serves as a barometer to some extent. From officially entering the blockchain space through investments and startups around 2018, to suffering a loss of US$275 million in FTX, leading the way in venture capital accountability, and now announcing a temporary withdrawal from crypto investments, is Temasek really set to retreat from the crypto field?

The Path of Singapore's Strongest State-Owned Enterprise in Web3: A Dual Approach of Investment and Entrepreneurship

Temasek was established in 1974 and is 100% owned by Singapore's Ministry of Finance, making it the most well-known wholly-owned company of the Singapore government. Temasek controls nearly all of Singapore's most important and largest enterprises, including Singapore Telecommunications, Singapore Airlines, DBS Bank, and the Singapore Mass Rapid Transit, effectively dominating Singapore's economic lifeline. However, despite being a government-controlled state-owned capital, the government does not directly manage the enterprise, adhering to a market-oriented operation.

A significant turning point in Temasek's rise was the appointment of Ho Ching as CEO in 2004, at a time when Temasek was struggling due to the ravages of the Asian financial crisis and the global economic downturn following 9/11. Despite the controversy surrounding her due to her status as the wife of Singapore's Prime Minister Lee Hsien Loong, under her leadership, Temasek genuinely embarked on a path of massive capital empire expansion, initiating a transparent system for public financial reporting and accelerating its expansion pace. Temasek's net investment portfolio value grew from US$90 billion when Ho Ching took over to approximately US$280.4 billion (as of the end of March 2021).

Temasek has long been a formidable capital empire. According to its 2023 fiscal year report, as of March 31, 2023, Temasek's portfolio net worth was S$382 billion, primarily invested in transportation and industrial sectors, financial services, telecommunications, media and technology, consumer and real estate, life sciences and agricultural food, and multi-sector 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, Industrial and Commercial Bank of China, China Construction Bank, Ping An Insurance, Standard Chartered Group, and DBS Group are its main investment projects.

Source: Temasek Annual Report 2023 -- Summary

Under the investment philosophy that leads social development trends, Temasek officially joined the wave of blockchain and Web3 around 2018. It not only invested in this field but also collaborated with partners to establish blockchain companies.

According to public reports, by the end of 2018, Temasek had invested in the enterprise blockchain software company and global banking consortium R3, while its venture capital arm Vertex Ventures made a strategic investment in Binance (which is now reported to have exited).

At the same time, Temasek identified blockchain and artificial intelligence as "foundational technologies" capable of achieving global digital disruption and formed corresponding teams for development. Mr. Pradyumna Agrawal, then Managing Director of Temasek Investment (Blockchain), left his position in the financial services investment team to officially establish the blockchain team and founded Affinidi, which focuses on portable and verifiable digital identities and credentials.

Overall, in terms of investment, Temasek mainly invests in mid-to-late stage leading projects. For early-stage projects, Temasek established the early-stage Web3 venture capital fund Superscrypt in 2022, which operates independently. Its focus is 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 statistics from the crypto data platform RootData, Temasek has publicly disclosed nearly seven investments in the blockchain field, primarily in well-known projects in the crypto space, including FTX, FTX.US, Amber Group, Immutable, ConsenSys, and Animoca Brands, with Temasek being the lead investor in its investments in Animoca Brands, Immutable, and Amber Group.

Source: R oot Data

Meanwhile, Temasek's early-stage Web3 venture capital fund Superscrypt has been investing at a faster pace. Since its establishment in 2022, it has made nearly 20 investments, most of which are infrastructure projects, with representative projects including Aptos and Safe. Notably, after the FTX collapse, Superscrypt's investment pace did not significantly slow down; since the beginning of 2023, it has already made 12 investments, averaging 2-4 investments per month.

Source: R oot Data

In addition, Temasek held approximately US$2.1 million in Coinbase stock ownership in the third quarter of 2021 but subsequently sold all of it in the fourth quarter. Furthermore, Temasek's Vertex Ventures, besides participating in the strategic investment in Binance in 2018, also led a US$4 million financing round for the decentralized identity project Carv at the end of 2022.

In terms of establishing blockchain enterprises, in addition to the aforementioned Affinidi focused on portable and verifiable digital identities and credentials, Temasek also co-created the blockchain platform Partior with JPMorgan and DBS Bank in 2021, aimed at improving global cross-border payment pain points. Currently, blockchain, artificial intelligence, cybersecurity, data and digitization, and sustainable solutions together constitute the "Temasek Operating System," driving innovation and growth within the Temasek ecosystem.

However, while actively participating in the blockchain development wave, Temasek has 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 adopt a dual approach in the blockchain field, laying out its strategy through both creating enterprises and making investments.

Regarding its focus on the blockchain field, Temasek stated:

• In creating blockchain enterprises, Temasek focuses on programmable money, digital asset tokenization, and decentralized identity and data. Some of these practical applications currently do not rely on blockchain as a foundation but depend on this technology and emphasize implementing open data solutions and open networks.

• In blockchain investments, Temasek mainly concentrates on: financial market service providers, offering protocol-agnostic and market-neutral investments in the digital asset space; and technology infrastructure, including protocols, wallets, developer tools, cross-chain information transmission, metaverse, and gaming infrastructure.

A Loss of US$275 Million, Initiating Venture Capital Accountability

What truly brought Temasek into the spotlight in the crypto field was its investment in FTX. However, this investment also damaged Temasek's reputation and initiated venture capital accountability.

According to Temasek's official statement, it invested approximately US$275 million in FTX and FTX US, with US$210 million invested in two funding rounds from October 2021 to January 2022, holding about 1% minority equity in FTX, and investing US$65 million in FTX US, holding about 1.5% minority equity. The investment cost in FTX accounted for 0.09% of Temasek's portfolio net worth of S$403 billion as of March 31, 2022. After the FTX collapse, Temasek wrote down its entire investment, and according to Forbes, Temasek, along with Sequoia Capital and Paradigm, were the three investment institutions that suffered the largest losses in the FTX incident.

Due to the numerous scandals surrounding FTX, Temasek, as a core investor and given its state-owned capital nature, faced intense scrutiny. In late November last year, the Singapore Parliament held a special discussion on the investment failure of Temasek, which is regulated by the Ministry of Finance of Singapore, in FTX.

Singapore's Deputy Prime Minister Lawrence Wong even condemned in Parliament that the events surrounding FTX not only caused financial losses to Temasek but also harmed its reputation. Lawrence Wong revealed that after announcing a write-down of up to US$275 million on its FTX investment, Temasek officially initiated an internal review, which would be conducted by an independent team aimed at "studying and improving its processes and learning lessons for the future." This team will report directly to the board, marking an "upgrade" to Temasek's regular review procedures.

Since the FTX investment occurred during Ho Ching's tenure, she also responded on Facebook: "FTX is not a market volatility issue; it reminds us that having good intentions is not enough; we also need to maintain a clear mind regarding risk assessment."

In its review statement regarding the FTX investment, Temasek indicated that its investment logic was to invest in a leading digital asset exchange, which generates revenue through trading fees without exposure to trading direction and balance sheet risks, providing us with a protocol-agnostic, market-neutral exposure to the crypto market. It added, "There is a misunderstanding in the market that our investment in FTX is an investment in cryptocurrencies. To clarify, Temasek currently has no direct investments in cryptocurrencies." Regarding its due diligence process, Temasek stated that it spent approximately eight months from February to October 2021 investigating FTX's finances, team, and regulatory risks.

At the end of May this year, Temasek's chairman released a statement regarding the results of the internal review of the FTX investment transaction. In short, all investments carry risks, and FTX concealed information from investors, including Temasek, constituting fraud. However, the investment team did not engage in any misconduct during the process of arriving at the investment recommendation. Nevertheless, despite the absence of misconduct, the investment team and senior management responsible for the investment decision bear collective responsibility and collectively took a pay cut. To some extent, Temasek has initiated accountability in venture capital.

Claiming to Temporarily Halt Crypto Investments: Is It Really a Full Retreat?

The collapse of FTX marked a significant turning point for Temasek's tightening stance on crypto investments. Temasek has now clearly stated that in light of the regulatory uncertainties in the cryptocurrency industry, it currently does not plan to invest in cryptocurrency companies. Since the FTX collapse, Temasek has indeed not announced any new crypto investments; the last investment was the blockchain platform Partior announced in November 2022, which, as mentioned earlier, was co-created by Temasek, JPMorgan, and DBS Bank.

While Temasek's main entity has temporarily retreated from cryptocurrency investments, there has been no further statement regarding whether its independently operated early-stage Web3 venture capital fund Superscrypt has also paused crypto investments. Superscrypt has already made 12 investments since the beginning of 2023, with its most recent investment announced on June 30, and it made four investments throughout June. Superscrypt has also remained relatively low-profile, with its website and Twitter primarily featuring updates on investment projects, with very few statements regarding its views on crypto.

In fact, Temasek has always been cautious about crypto investments. In 2021, Robert Gutman, CEO of NYDIG, and Real Vision founder revealed that Temasek had begun purchasing Bitcoin, particularly Bitcoin directly from miners. However, Temasek subsequently stated that it does not own Bitcoin but is actively participating in blockchain investments and seeking emerging opportunities in the industry. Recently, as it released its 2023 fiscal report, Temasek's Chief Investment Officer Rohit Sipahimalani reiterated, "We 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 instance, in 2018, Temasek denied participating in the pre-IPO financing of Bitmain, and in May of this year, it denied reports that it invested US$10 million in Array, a developer of algorithmic currency systems based on smart contracts and AI, which was valued at over US$100 million.

Moreover, in the past two years, reports of Temasek participating in crypto investment funds have not been confirmed, such as reports that Temasek, along with giants like Google and Blackstone, jointly established a blockchain fund worth several billion dollars, and that it participated in a US$500 million crypto venture fund by Hack VC, which ultimately did not materialize.

As of today, with the announcement of its temporary withdrawal from crypto investments coinciding with the release of its 2023 fiscal year report, it may serve as a warning that the often-hyped narrative of traditional financial conglomerates entering crypto with massive capital inflows could very well be an illusion given the limited technological innovation in crypto and the lack of regulatory maturity.