SINGAPORE — Non-constituency Member of Parliament, Mr Leong Mun Wai hopes that Temasek Holdings will publicly release its internal review report once it is completed, especially the recommendations and specific lessons learnt from its failed FTX investment.
On Wednesday (30 Nov), Deputy Prime Minister and Finance Minister Lawrence Wong responded to questions filed by Members of Parliament over Temasek’s write-down of its US$275 million investment in bankrupted cryptocurrency exchange FTX and the possible audits on Singapore’s two sovereign wealth funds, Temasek and GIC.
Mr Wong shared that an internal review will be conducted by a team within Temasek led by people separate from the investment team that made the decision to invest in FTX and is intended “to study and improve its processes, and to draw lessons for the future”.
Penning his thoughts via a Facebook post on Friday (2 Dec), Mr Leong from Progress Singapore Party (PSP) wrote that he had earlier noticed that the questions in relation to the FTX saga were placed towards the end of the Order Paper on 28 November.
“For an issue that is of great concern to many Singaporeans, I was concerned that MPs would have to settle for a written answer instead of being able to question the Government orally”
This is why he stood to raise a “point of order” at the start of the Parliamentary sitting on 28 November to clarify on why the questions were placed at the end.
The Speaker of Parliament said this was done in consultation with the Leader of the House, Indranee Rajah and those who wish to have their oral questions answered orally, may shift their questions to Wednesday (30 Nov).
Mr Leong said that many Singaporeans will be disappointed that the 45 minutes of Question Time was insufficient to address issues that they would like answers for and that it is meant for asking questions, and not a forum for debate.
Further noting that parliamentarians are also “restricted” to asking two supplementary questions, and usually do not get a chance to ask further follow-up questions.
“If we wanted a full debate, the issue must be raised in another motion, possibly after Temasek has completed and released its internal review,” said Mr Leong.
“The admission by DPM Lawrence Wong that Temasek had suffered reputational damage in addition to financial damage from having to write down US$275 million, barely a year after investment raised many questions about the investment process.”
“We hope that the report on Temasek’s internal review will tell us how Temasek intends to avoid such future lapses to allay the concerns of Singaporeans.”
Mr Leong had asked Mr Wong on 30 November if that review will be made available in a future session in Parliament.
In response, Mr Wong said:
“So as a matter of practice, GIC and Temasek, in fact, do not put out any information on specific individual investments. But in this case, precisely because of the unique of the circumstances leading up to it, because from Temask’s point of view, it recognized that it has incurred reputational damage.”
“Temasek decided to put out a statement disclosing the circumstances leading up to its investment decision, why it had done all the due diligence and despite the due diligence, found reasons to still proceed with the investment. All of that is on the Temasek website, including a series of FAQs. So all of that is available on the Temasek website.”
Possible errors by Temasek
Mr Leong who is a former investment officer at GIC suggested that the investment team for FTX at Temasek might have erred in two major areas in evaluating venture investments – “key man risk” and “balance sheet risk”.
He pointed to Temasek having admitted to wrong judgement in the key man risk, in its statement released on 17 November, “It is apparent from this investment that perhaps our belief in the actions, judgement and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced.”
In that same statement, Mr Leong noted that Temasek was less explicit in admitting to the oversight of the balance sheet risk.
However, if “the thesis for our (Temasek’s) investment in FTX was to invest in a leading digital asset exchange providing us with protocol agnostic and market neutral exposure to crypto markets with a fee income model and no trading or balance sheet risk”, it may have committed a professional lapse in evaluating potential balance sheet risks by missing out on the relationship between FTX and Alameda Research.
“Having said that, making correct investment decisions is a fine art and mistakes happen often. We should not be overly hard on our sovereign fund managers. Instead, we should challenge them to learn from their mistakes and do an even better job for us in the future.”
Mr Leong suggests that Temasek Chairman Lim Boon Heng and CEO Dilhan Pillay Sandrasegara should note that Singaporeans are increasingly asking for more transparency and accountability in the management of Singapore’s trillion-dollar reserves, of which Temasek’s portfolio is a part of.
“Singaporeans’ awareness of the reserves has heightened in recent months, following the discourse on the reserves and the accounting of land sales.”
Temasek’s Investment Into Bankrupted Cryptocurrency Exchange
Temasek issued a statement on 17 November to announce that it will be writing down its US$275 million into the cryptocurrency exchange FTX in light of FTX’s bankruptcy filing.
The SWF noted that the thesis for its investment in FTX was to invest in a leading digital asset exchange providing it with protocol agnostic and market neutral exposure to crypto markets with a fee income model and no trading or balance sheet risk.
In regards to its due diligence prior to the investment into FTX, Temasek said it had reviewed FTX’s audited financial statement in a process which took approximately 8 months from February to October 2021, which showed it to be profitable.
It added that its due diligence efforts were focused on the associated regulatory risk with crypto financial market service providers, particularly licensing and regulatory compliance (i.e. financial regulations, licensing, anti-money laundering (AML)/ Know Your Customer (KYC), sanctions) and cybersecurity.
“We recognise that while our due diligence processes may mitigate certain risks, it is not practicable to eliminate all risks.” said Temasek.
Temasek defended its investment into FTX by saying, “Our investment discipline, centred around intrinsic value and our risk-return framework, guides our due diligence for new investments and ongoing engagement with our investee companies.”
“We do recognise the inherent risks of investing in early stage companies and take a very measured approach to such investments by applying an illiquidity risk premium on the cost of capital,” it added. “In addition, we also add on a venture risk premium for the early stage they are in.”
However, in light of the new FTX CEO’s findings and assessment of FTX’s former management, many have wondered how Temasek went about its due diligence process before investing US$275 million into the company.