Did Temasek suffer its worst performance in 7 years and announce a temporary retreat from cryptocurrency investment, ending in failure?

Did Temasek suffer its worst performance in 7 years and retreat from cryptocurrency investment, ending in failure?

Despite Temasek’s announcement that it will not invest in cryptocurrency companies, its early-stage Web3 investment fund may not have slowed down its investment pace.

Written by: flowie

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

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Source: Temasek Annual Report 2023 – Summary

Although Temasek attributes this result to factors such as economic recession risks, rising interest rates, and geopolitical tensions, its failure in the cryptocurrency field cannot be ignored. On the day of the financial report release, Rohit SiLianGuaihimalani, Chief Investment Officer of Temasek, stated in an interview with CNBC that Temasek currently does not plan to invest in cryptocurrency companies due to regulatory uncertainties in the cryptocurrency industry. SiLianGuaihimalani also added, “We have never thought of investing in cryptocurrencies. Even in the case of investing in FTX, we are referring to investing in the exchange, which allows us to obtain fee-based income without considering balance sheet risks or any trading risks.”

As the most influential sovereign wealth fund, Temasek’s attitude towards cryptocurrency also has a certain significance as a guide. From officially entering the blockchain through investment and entrepreneurship around 2018, to losing $275 million on FTX, leading the way in venture capital accountability, and now announcing a temporary retreat from cryptocurrency investments, is Temasek really going to be defeated in the cryptocurrency field?

Singapore’s strongest state-owned enterprise on the Web3 journey, investing and starting businesses simultaneously

Temasek was first established in 1974, with the Singapore Ministry of Finance holding 100% of its shares, and it is also the most well-known among all wholly-owned companies owned by the Singapore government. Temasek controls almost all of Singapore’s most important and highest-revenue companies, including Singapore Telecommunications, Singapore Airlines, DBS Bank, and the Singapore Mass Rapid Transit, and can be said to dominate Singapore’s economic lifeline. However, despite being a government-controlled state capital, the government does not directly manage its companies and follows a market-oriented operation.

A significant turning point in Temasek’s rise was the appointment of Ho Ching as CEO in 2004, when Temasek was already in decline due to the aftermath of the Asian financial crisis and the global economic recession after 9/11. Although Ho Ching was controversial due to her position as the wife of Singapore’s Prime Minister Lee Hsien Loong, under her leadership, Temasek truly embarked on the path of expanding its massive capital empire, opening up a transparent system of disclosing financial reports, and accelerating its expansion. Temasek’s net investment portfolio value 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 an undisputed giant in the capital empire. According to its fiscal year 2023 annual report, as of March 31, 2023, the net value of Temasek’s investment portfolio was SGD 382 billion, mainly in the fields of transportation and industry, financial services, telecommunications, media and technology, consumer and real estate, life sciences and agricultural food, and multi-industry funds. In the telecommunications, media, and technology fields, Tencent, Alibaba, and Meituan are its main representative investment projects. In the financial services field, BlackRock, Mastercard, LianGuaiyLianGuail, ICBC, CCB, Ping An Insurance, Standard Chartered Group, and DBS Group are its main investment projects.

Source: Temasek Annual Report 2023 – Summary

Under the investment concept of leading social development trends, 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 already invested in enterprise blockchain software companies and the global banking alliance R3, and its venture capital department Vertex Ventures made a strategic investment in Binance (official website shows that it has 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, the former Managing Director of Temasek Investment (Blockchain), gave up his position as a director in the Temasek Financial Services Investment Team and officially formed a blockchain team to establish Affinidi, which focuses on portable and verifiable digital identity and credentials.

In terms of investments, Temasek mainly invests in later-stage prominent projects. As 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, identities and credentials, developer tools, data indexing and search, scalability, and privacy.

As of now, according to the statistics from the encrypted data platform RootData, Temasek has announced nearly 7 investments in the blockchain field, most of which are well-known projects in the crypto field, including FTX, FTX.US, Amber Group, Immutable, ConsenSys, Animoca Brands, etc. And in the investments in Animoca Brands, Immutable, and Amber Group, Temasek is the lead investor.

Source: RootData

The early-stage Web3 venture capital fund Superscrypt under Temasek has a faster investment pace. Since its establishment in 2022, it has made nearly 20 investments, most of which are infrastructure projects. Representative projects include Aptos, Safe, etc. It is worth mentioning that after the collapse of FTX, the investment pace of Superscrypt did not slow down significantly. Since 2023, it has already made 12 investments, basically 2-4 investments per month.

Source: RootData

In addition, Temasek previously held approximately $2.1 million worth of Coinbase shares in the third quarter of 2021, but sold them all in the fourth quarter. Temasek’s subsidiary, Vertex Ventures, not only participated in Binance’s strategic investment in 2018, but also led a $4 million funding round for decentralized identity project Carv at the end of 2022.

In terms of founding blockchain companies, in addition to Affinidi, which focuses on portable and verifiable digital identity and certificates, Temasek also collaborated with JPMorgan and DBS Bank in 2021 to create the blockchain platform LianGuairtior, dedicated to improving global cross-border payment pain points. Currently, blockchain, artificial intelligence, network security, data and digitization, and sustainable solutions together form the “Temasek Operating System” to promote innovation and growth in the Temasek ecosystem.

However, although Temasek actively participates in the wave of blockchain development, it also states on its official website that the rise of the blockchain and digital asset industry brings countless opportunities as well as significant risks. This is why Temasek has decided to pursue both creating companies and making investments in this blockchain field.

Regarding the focused areas of blockchain, Temasek states:

• In creating blockchain companies, Temasek focuses on programmable currencies, tokenization of digital assets, as well as decentralized identity and data. Some of these entities are not currently based on blockchain technology, but rely on this technology and focus on implementing open data solutions and open networks.

• In blockchain investments, Temasek mainly focuses on financial market service providers that offer protocol-agnostic and market-neutral investments in the digital asset field, as well as technology infrastructure, including protocols, wallets, developer tools, cross-chain information transmission, metaverse, and game infrastructure.

Losing $275 million, initiating venture capital accountability

What truly brought Temasek into the spotlight in the crypto field is probably its investment in FTX. However, it is 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 funding rounds from October 2021 to January 2022, Temasek invested $210 million in FTX, holding about 1% of its minority equity, and invested $65 million in FTX US, holding about 1.5% of its minority equity. The cost of Temasek’s investment in FTX accounted for 0.09% of its portfolio net value of $403 billion as of March 31, 2022. After the collapse of FTX, Temasek wrote off its entire investment. According to Forbes, Temasek, along with Sequoia Capital and Paradigm, suffered the largest losses among the three investment institutions in the FTX incident.

Due to the many scandals surrounding FTX, Temasek, as a core investor, has faced strong accountability given its nature as a state-owned capital. In late November of last year, the Singapore Parliament held a special discussion on the investment failure of Temasek, a holding investment company regulated by the Singapore Ministry of Finance, in FTX.

Singapore’s Deputy Prime Minister, Lawrence Wong, even condemned the incident at FTX in Parliament, stating that it 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 investments, Temasek has officially launched an internal review, which will be carried out by an independent team. The review aims to “study and improve its processes and learn lessons for the future”. The team will report directly to the board, marking an “upgrade” to Temasek’s regular review procedures.

Since the FTX investment occurred during the tenure of Ho Ching, she also responded on Facebook, stating, “FTX is not just a market volatility issue. It reminds us that having good intentions is not enough, and we also need to maintain a sober assessment of risks.”

In its retrospective statement on the FTX investment, Temasek stated that its investment logic for FTX was to invest in a leading digital asset exchange that generates revenue through a transaction fee model, without the risks of trading direction and balance sheets. This provides us with exposure to the cryptocurrency 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 cryptocurrency. We want to clarify that Temasek currently does not have any direct investments in cryptocurrency.” Regarding its due diligence process, Temasek stated that it spent approximately 8 months from February to October 2021 conducting investigations into its finances, team, and regulatory risks.

In late May of this year, the Chairman of Temasek released a statement regarding the results of the internal review of the FTX investment transaction. In short, all investments come with risks, and FTX concealed information from Temasek and other investors, leading to fraud. However, Temasek’s investment team did not engage in any improper behavior during the process of forming investment recommendations. Despite the absence of misconduct, the investment team and senior management responsible for investment decisions collectively took responsibility and accepted pay cuts. Temasek, to some extent, has initiated accountability in venture capital.

Claiming to suspend cryptocurrency investments, is Temasek really withdrawing entirely?

The collapse of FTX marks a major turning point for Temasek in terms of tightening its cryptocurrency investments. Now, Temasek has clearly stated that it currently has no plans to invest in cryptocurrency companies due to the uncertain regulatory environment in the cryptocurrency industry. After the FTX incident, Temasek has indeed not announced any further cryptocurrency investments. The last investment announced was the blockchain platform LianGuairtior in November 2022, which, as mentioned earlier, is also a subsidiary created jointly by Temasek, J.P. Morgan, and DBS Bank.

Although Temasek, the main body, has temporarily withdrawn from cryptocurrency investments, it has not made any further statements regarding whether its independent early-stage Web3 venture fund, Superscrypt, has also suspended cryptocurrency investments. Since 2023, Superscrypt has made 12 investments, with the latest announcement on June 30th, and even made 4 transactions in the entire month of June. Superscrypt has always been relatively low-key, and apart from the dynamics of investment projects on its official website and Twitter, there are very few statements regarding cryptocurrency views.

In fact, Temasek has always been cautious about cryptocurrency investments. In 2021, the CEO of the New York Digital Investment Group (NYDIG) and the founder of Real Vision revealed that Temasek has started to buy Bitcoin, especially Bitcoin directly from miners. However, Temasek later stated that it does not own Bitcoin, but actively participates in blockchain investments and is seeking emerging opportunities in the industry. Recently, on the occasion of the release of the 2023 financial report, Rohit SiLianGuaihimalani, Chief Investment Officer of Temasek, once again emphasized that we never thought of investing in cryptocurrency.

In addition to repeatedly denying direct investments in cryptocurrencies, Temasek has also repeatedly denied investments in some cryptocurrency companies. For example, in 2018, Temasek denied participating in the pre-IPO financing of Bitmain. In May of this year, regarding the statement that “Array, a developer of algorithmic currency systems based on smart contracts and AI, received a $10 million investment from Temasek at a valuation of over $100 million”, Temasek also issued a statement denying it.

In addition, in the past two years, the news of Temasek’s participation in investment in cryptocurrency investment funds has not been confirmed. For example, there have been reports that Temasek, Google, Blackstone, and other giants jointly established a blockchain fund with a scale of several tens of billions of dollars, and participated in a $500 million cryptocurrency venture fund of the venture capital firm Hack VC. However, there has been no follow-up on these reports.

As of today, when Temasek announced its temporary withdrawal from cryptocurrency investments in the 2023 financial year report, it may warn us that the narrative of traditional large financial institutions entering the cryptocurrency market and bringing huge capital injection through speculation is likely to be a fantasy in the current context of limited technological innovation and imperfect regulation in the cryptocurrency itself.

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