Temasek in a teacup…

I ran into Roger Ferguson, the former vice-chairman of the Federal Reserve Banking System (Alan Greenspan’s no 2) at a conference in Beijing in recently. Enjoy with indian dreaming pokie machine. I had not seen him since he left Swiss Re and joined the $400billion TIAA-CREF, a teacher’s pension fund as CEO.

We had a few minutes to chat in the hotel lobby while he waited for his car to the airport and one of the first things he asked me was “what was that … Tharman commenting in parliament …” I was impressed by the fact that one of the doyen’s of the US financial system had what was happening in a small country on his radar screen somewhere. He was referring to the minister of finance’s spirited defence of Temasek’s performance in Parliament about a month before that conversation.

People in the pension fund management business, as Roger is now, are actually very simple and straight forward. The objectives of the pension fund are set for them by their boards and all they need to do is to keep it on the straight and narrow by investing in long term bonds and ensuring the base capital is not eroded.

They have a long list of criteria set out for them, that the fund managers are almost on auto-pilot in terms of what they can or cannot invest in.

So, the way in which Roger explained his fund to me was to just shrug his shoulders and say “oh, we are $140b invested in long bonds and the rest in…” this and that. People like him find the scrutiny of parliaments and governments that a SWF like Temasek has to go through as bizarre, because in the context of their world, the objectives should have been set for Temasek and it should be running on auto-pilot, and if the government wanted to change the objectives, it should just issue a fresh mandate and leave Temasek alone to do what it’s supposed to do.

SWF’s unfortunately are generally more complicated than that. We launched into this deeper discussion on sovereign wealth funds in general, and whether it is Temasek or the Kuwait Investment Office (KIO), sovereign wealth funds as a class tend to behave the same way. In other words, the issues facing Temasek or the GIC are really no different from the ones affecting the Dubai SWF or the Abu Dhabi SWF or China’s version of a SWF, the CIC.

As a rule, they tend to get various investment objectives all mixed up with political objectives and the personal vision of the leaders of the country on how to stretch the influence of the fund to achieve other unrelated objectives of the country. It takes a few years to get the culture of managing wealth sensibly down to a simple formula.

Ho Ching, of course, would never call Temasek a “sovereign wealth fund”. She goes through a lot of pain to explain to anyone who would care to listen carefully that Temasek is an investment holding company of sorts (I forget the actual phrase she uses) that generates its assets from the income of the performance of the companies it owns, and not government budgetary surpluses or some sort of national oil from the ground. That in a sense is what the Government of Singapore Investment Corporation (GIC) does. Technically, she is not incorrect, but curiously, her definitions are always lost on the people listening to her.

After that brief discussion with Roger, I thought a lot about what was ailing Temasek today. I have enjoyed interacting with people at Temasek if only because all these years it was heavy weighted in financial services, and there was this sense of mission to build that ultimate financial institution that would put Singapore on the world map. That goal is now amiss, as the organisation scrambles to restate a new objective.

The global economic crisis did expose some of the shortcomings about Temasek, as it did every SWF business in the world. But the way in which the public and the media appear to be framing the issues is very pedestrian, and in my view, unhelpful. I thought that I should list plainly the most important issues I think any discussion on Temasek today should take into consideration, and actually there are just five:

1. Firstly, the nature of this beast. Is it a SWF or an investment management company or a morphed entity that needs to be properly defined?

In defending Temasek’s performance, Tharman used fund management industry measurements against a self-stated index. But if we were to line up all the professional talent inside the organisation today, the time they spend on different things and the range of investments they make, it becomes clear that Temasek is really:
– part “EDB” (Economic Development Board)
– part investment-banking-inspired-private-equity-business
– part fund management company
and each of these different parts makes benchmarking its performance against a simple investment performance index notoriously unrepresentative of the entity that it actually is.

It needs to be said at the outset that this is the beast that Ho Ching inherited when she took over in 2003. It was already a 30 year old institution then, but she did not then set out to change it, but grew it into a larger monster.

Seen from a positive angle, this is not a negative. Temasek can be described as amongst the more developed of SWFs around the world, in terms of range of skill sets and ability to add value to the investments they make. But this positive feature is also what adds severe limitations to what Temasek is able to achieve today.

The “EDB hormone” (for want of a better reference) of Temasek forces it to take positions based not on a purely profit motivation, but on broader considerations of what it would consider to be of national interest. So, for example, you would not see Temasek investing in budget airlines as an asset class in any neutral manner, but focusing strongly on making its own Tiger Airways and Jetstar (I understand they divested this recently) successful at the expense of investing in more successful competitors, if these were Air Asia or Cebu Pacific.

The investment-banking-inspired-private-equity face of Temasek comes from its interactions with investment bankers for its M&A deals. It takes on the values that drive global investment banks, concepts like “corporate synergies”, “scale” and ‘market efficiencies” at the expense of other considerations that may make a local market resist the entry of a Temasek – such as “localisation” or “anti-monopoly” as we have seen in its Thai and Indonesian investments in recent years.

Unfortunately, this inspiration to do things investment-banking style also got Temasek into so muchc trouble. To the extent that the Singapore government has gone with the advice of investment bankers without any counterweighing sensibilities, it has never gone well.

The decision in 1997 to merge POSB into DBS Bank, when leaving the post office savings bank alone would have generated a steady revenue to the government while providing low cost of funding to Singaporeans, even on a commercial basis, was one. At the end of the day, it was a deal inspired on investment banking principles of “scale and mass” for DBS at the expense of, well, leaving an important institution alone. DBS spent many years after that paying for the mistake.

Anyone who has to use investment bankers have to go through the process of learning not to be intimidated by these A type personalities, but to use them appropriately. Remember, that Hank Paulson went to the US Congress to ask for US$700billion with just three sheets of paper, with nothing behind them. For an organisation like Temasek, that on the one hand charts its own course, but that on the other hand is distracted daily by opportunities presented by those are inspired by deals.

The ill-advised strategy, that of investing in two or more of the largest companies, such as telcos and banks, in several countries after the Asian crisis of 1997, would have been inspired by such conversations at the expense of other considerations. Business EQ should suggest that they should have thought 2-3 steps ahead of local response towards foreigners creating monopolies, but they simply did not.

But inasmuch as we can blame outrageous investment bankers, the final ownership of any decision rests with the people sitting on the other side of the table. In the early days, it was the Singaporean government officials, dealing with investment bankers on these matters for the first time. Later it was the boards set up by the government to make those decisions. In both instances, the ownership of the decisions did not emanate from the professional management teams that reported to them.

The world’s “gold standard” in this regard, the one often cited as the SWF that all other SWFs are encouraged to emulate, is the Government Pension Fund of Norway. It is a collective name for two funds worth about US$360billion and despite being so much larger, they seem to get into far less trouble than Temasek.

The Norwegian funds are the largest single investor in equities across Europe, and yet, it takes a fund management and not an investment banking approach to investing – only minority stakes, keeps it own nose clean and is friends with everyone. Very simple. Truly a powerful and respected investor right across Europe, but without the troubles of a Shin Corp, or a Telkomsel and Indosat in its books.

Temasek was in such a good position to “prosper thy neighbours” by investing in benchmark institutions in neighbouring countries with clear exit objectives, but somehow, its conflicting objectives got it into more trouble than it was worth. It’s own directors will simply not admit that there were shortcomings in the way they evaluated Shin Corp or other such deals and until they do, they will have internalised the lessons.

Then when we see Temasek take a stake in an Australian education company, we are actually seeing a very different hormone at play. I call it the “EDB hormone”, because just when you thought that the lack of size or scale would have stymied the investment, it did not. Neither did it have any of the characteristics of an investment-bank-inspired-private equity stake.

The only way to explain that one is to say that the Temasek board had a free run of doing pretty much what it wanted. The problem with the EDB hormone in Temasek’s personality is that the EDB tendency is to take on more risks than fund managers would be inclined to take, because EDB executives tend to be measured by the spectacularly successful investments they make, with complete unaccountability for the spectacularly unsuccessful ones.

By the time we examine Temasek for what it is supposed to be at the core – an investment management company – we realise that it is saddled with conflicting objectives that precludes it from operating on sensible and transparent objectives that are measurable in a meaningful way. The board can easily design it differently, but it does not, so that it now has the free hand it has.

A visit to the Norwegian Ministry of Finance website will reveal how its SWFs have so many rules and conditions attached to what they can invest in – how much in local stocks, how much in European stocks, how much in international investments, only minority stakes, ethical and sustainability policies, complete with a list of the kind of industries they should avoid. So complete that a Norwegian university student could guess correctly the kind of investments that his or her government is likely to make just keeping to the criteria.

Like ALL investment companies, the Government Pension Fund of Norway did lose money in 2008, but within a narrower margin (something like $3billion in value, that recovered when the markets went up, according to the Norwegian ministry of finance). In a good year, it does make money, but only enough to protect the core net worth of the endowment for future generations of Norwegians.

In comparison, Abu Dhabi’s investment fund, which operates with much of the same conflicts as Temasek, lost $125billion last year because just like Temasek, it took a view that investing in US banks was the thing to do. Sure, the Norwegian model appears more predictable and stable, but I am not at all suggesting that this constitutes the full answer at face value. Why be in the centre of Asia and declare an average annual return of 4.8 percent in the 10 years since the 1998 crisis as the Norwegian one did? Why, we would have accused Temasek of sleeping on the job.

There is a lot of useful discussion to be had in providing a comparison between the performance of the different SWFs, even if the comparisons are against differently defined indices, and Tharman could have used such comparisons to good effect when he spoke in Parliament on the topic.

2. Secondly, there is a lot of value in discussing the performance of Temasek, not just as one monolithic entity, which it is not, but in its constituent parts, so that the complexity of the organisation becomes clear to the taxpaying, voting citizen.

Giving one index to measure the performance of all of Temasek’s different types of investments, as Tharman did in that parliamentary speech, does not tell the full story. When CALPERS, at US$170billion (also down, from $240b since 2008!), still the world’s largest pension fund and in some ways, the SWF of California state if it were an independent republic, reports its results, the CIO breaks it down to the fund management returns and the private equity returns and measures them separately.

As I will point out below, it is misleading to measure the performance of a complex institution like Temasek against one index because it overplays the risks taken by one facet of the business and undervalue the non-tangible assets of the other.

Of the three hormones that are supposed to be driving Temasek, one of the things I like about the fund management hormone is its relative clarity of purpose, relative to say, investment bankers or worse, hedge fund managers. I think it should be the hormone driving the entire organisation, but for some reasons I will discuss in my second point, it does not.

Fund managers are a simple lot. I see this in the different styles that fund managers write their books, as compared to the others. I bought Mohamed El-Erian’s book, When Market Collide, hoping to see some deep insight into investing, but found it very simply written. Simple, clear, auditable and defensible. Likewise, Warren Buffet’s folksy annual letter to his investors. It is written in exactly the way he talks and obviously thinks! It’s supposed to be that simple.

The two books I have on my bookshelf written by or about hedge fund managers (1. Inside the House of Money, Steven Drobny and 2. Inventing Money, the story of LTCM by Nicholas Dunbar) are not easy reads for me. Hedge fund managers love the subterfuge. I have to read chapters twice or more to understand their obvious desire to be seen as clever. The reason is that hedge fund managers look for arbitrate opportunities. The trade itself is not good enough for them. It’s when they can short the trade or leverage it and sell it on that gives them the adrenalin rush and the profit push.

The “EDB hormone” within Temasek adds a quirky dimension to the way knowledge is applied within Temasek.
Many years ago, I was seated at a same business luncheon table as an ex-EDB official who is still very senior in government. He would not have a clue that I was even there at the luncheon. I took note that the level of detail he went into Japanese home sales over several quarters that year in that conversation made me sit up and truly marvel at the minuteness of his in-depth knowledge.

Over the years, as I encountered other ex-EDB people, I recognised the same pattern – the propensity to absorb and spout a lot of data. When I recall the aggregate of all the EDB executives I have known in my life – all of them, past and present – the one thing that I am always amazed with is their ability to foam with tons of minute information, in ways that businessmen or entrepreneurs don’t.

Ask any current or ex-EDB executive about Venezuelan oil, and he or she can talk for one hour and 30 minutes on the topic. Then change the topic to Ecuadorian coffee, and be in for another one hour and 30 minutes. There was this one ex-EDB senior executive who knew so much about global payment systems that I simply could not win any argument with her because she will always know so much more than I ever will, even if she completely missed the point I was making.

Although technically, very few of Temasek’s executives are from the EDB, that culture permeates through the organisation for some reason. It may be that people from the ministry of defence intelligence corp. and other government and statutory agencies have that same trait. I did notice that my contemporaries from university who work in the ministry of foreign affairs also have that same trait. Perhaps, it’s just that training that all well-oiled state entities cultivate in their professional staff.

On the converse, in my conversations with the likes of Mark Mobius, one of the world’s most respected emerging markets investor, I realised after pounding him with questions, that the flavour of the conversation with the people engendered from business was always a light one, with just enough of the right information for him to jump from point to point like an antelope and connect the dots – a conversation where skill and judgment prevailed, even if he was using a lot of data at the backend. Similarly with others who come from business and not government.

3. I have now mentioned Temasek’s board several times as being central to the nature of the beast as it exists. The big question here is, does it need to be?

Ho Ching often talks about a culture of “ownership” within Temasek’s management team and somehow this very holy grail appears to elude her. The gold standard for this culture of ownership actually once existed within Singapore’s own government circles in its early years. I call it the healthy didactics between the different owners of “The Decision” in anything.

It was once told about the first minister of finance Dr Goh Keng Swee, that he had a habit of saying no to all request for money unless the minister asking came back to him several times with better reasons every time. He obviously had this attitude that others would have considered irritating but one which contributed to that didactics that made for good decision making.

The same quirks could be found in Hon Siew Sen, Ngiam Tong Dow, Howe Yoon Chong, JY Pillay. Strong personalities who contributed their forcefulness to shape decisions. I would argue that Lee Kuan Yew drew strength from their sense of ownership.

Having said that, the men who were drawn to Lee Kuan Yew’s leadership in the early years came were pioneers. They came together under distressing circumstances and built their careers around him for reasons that do not exist today anymore. Although they were mostly “generalists”, they evolved the art of institutional decision making together.

Unfortunately for us, we are now in the 5th or 10th or even 20th iteration of that decision making model in Singapore. Many of the decision makers in the early years are still there! Except that they now sit on the board instead of in the management ranks. Which in turn makes professional management skill in Singapore’s state-owned system that more difficult to cultivate.

But in the place of pioneering generalists with a sense of shared mission in the early days of Singapore, it is important today to find men and women who are hired specifically “fit for purpose” and then to be trusted to grow more confident with each decision. There should be a premium in the system for such people to be cultivated and trusted.

What we end up instead are smug professionals at the management layer, acutely conscious about how what they achieve at Temasek will look on their CV than doing what is good for the organisation, but knowing full well that the final decisions are in the hands of someone higher up. Without naming the departments, I have met different people from Temasek who look at the same industry as each other, but go to great pains to tell me why they have nothing to do with each other.

This sense of internal competition inevitably devolves power back to Ho Ching because everybody thinks they report to her and do not necessarily need to find synergies by working with each other. So, here she is trapped, wishing that the organisation is able to operate on its own steam, but it keeps harking back at her.

Unfortunately for Temasek, a whole range of senior managers were hired in recent years, amalgamated with old hands, and then reshuffled (and going to be re-shuffled again) making almost all of them dangerously simply reinforce the myth of Ho Ching as the intractable boss. Any more management consulting inspired reshuffling will only deepen this destructive cycle that will centrifuge power back towards herself.

Which in turns begs the question – if Ho Ching has all these good intentions listed out in her speeches, then why is she unable or unwilling to break out of this? Coming up with a new compensation model is not going to change the likes of its management team. It is not the money that is the issue. It is the way in which the board actually usurps the final decision in all things that matter. She has surrounded herself with directors who should not even be there, but who depend on this model of decisions devolving to her, so that their own relevance is justified.

Nowhere is the importance of ambiguity reflected than in Temasek’s own website. Reading the list of “investment themes” that Temasek sets for itself: (see http://www.temasekholdings.com.sg/our_portfolio.htm ) I got this uneasy feeling that the themes were set by person or persons unknown who were trying to cramp foams of knowledge into over-loaded concepts, so that Temasek could do anything it wanted. Each of the themes of (1) transforming economies, (2) the growing middle class, (3) deepening comparative advantages and (4) emerging champions sound like over-loaded concepts to take on an EDB-type approach to investment. Whoever wrote it would have been satisfied that he had covered all bases. It was not at all something designed to guide a focused investment business.

The simple clarity of the Norwegian ministry of finance’s objectives, on the other hand, if you read it on their website, makes any of its citizens reading it to conclude three very simple things about their SWF: (1) that my government cares for me (2) that my government’s investments are made around values that I subscribe to (3) the investment criteria of my government is so transparent that even I can guess which investments they will or will not take.

If we were to ask the Temasek board to list what industries constitute “transforming economies” we would soon realise that it’s such an over-arching terminology that you could list any company in there and by the following year, the investment would contradict the other objectives on the list. At the same time, for each one of its own stated themes, we can list any number of missed opportunities or investments that do not even fit into any of its own stated categories, including the investment in Merrill Lynch.

That is also why I had difficulty placing that now infamous letter sent by Myrna Thomas’ (the PR head) to the local newspapers on Temasek’s performance in May. Although it pretends to use the language of a fund manager, it did not have the clarity of one and reflected the defensive posture of an uncertain teenager who wants to subscribe to the adult values of being transparent and responsible, yet was not sure yet how much its parent wanted it to discuss its positions.

Ho Ching has on several recent occasions said that she expects that 30% of Temasek’s portfolio will be invested in Singapore, 40% in the rest of Asia, 20% in OECD countries and 10% in new areas like Latin America, Africa and others. Would it not be so simple just to list these as the investment objectives, with an idea of the timeline horizon?

Generally, you would think that an organisation that technically has considerable research capability of the heavyweight-EDB kind is always prone to err on the side of the caution in its investments. Yet, it is my suspicion that what actually happens in the moments of decision at Temasek is dependent on factors other than the tons of good research – it defaults back to the board as the decision maker.

The desire to be transparent, and then falling short on something as simple as stating the investment parameters clearly is one of the great ironies of Ho Ching’s intentions and this is so easily traceable to the people she has surrounded herself with at the board.

4. The corollary from the clash of cultures within Temasek is to ask the question about the quality of the Chief Investment Officer (CIO). There is a lot of talk about the new CEO, another white man called Goodyear. I could not get excited reading his CV, no matter how many times I read it. Not because he was not a good man, because I am sure he is, but I could not see how his skill sets were relevant to the task of leading this investment company.

I was however, immensely impressed by the choice of the new CEO at the Singapore Exchange, Magnus Bocker. He comes with the right background experience that no Singaporean would have had, that of creating a cross-border electronic exchange in a different part of the world, and taking it global. He comes at the right time in his career to make a difference to SGX. He is not a has-been who should be more of an adviser, but a hungry young man determined to prove himself. He wants that CEO role and will make the most of it. Even his salary is commensurate with what we generally pay people here. Spot on.

Keeping an open eye about hiring the best from anywhere in the world is absolutely important and it would sometimes land immensely qualified people like Bocker. But blindly pursuing a white-only policy blocks out an entire generation of competent Singaporean and other more sensible talent from the very top jobs that could generate the next generation of leaders in their home country. This is really an outrageous phenomenon that cannot be sustained.

To some extent, asking why the board of Temasek even considered Goodyear is important to know. Were they looking to him to be an investment decision maker, were they looking to him to reorganise Temasek. To ask a more insidious question, we need to think if the older generation of Singapore’s appointed board members are now perfecting the art of hiring inconsequential CEOs precisely so that the final decision making capability still rests with these otherwise fading personalities.

I was in fact asking, why would someone running a commodities company now want to run an investment company. Having said that, I asked myself, why in the world were they putting so much premium on the CEO in the first place? If the investment objectives of a SWF is clearly set and the direction and goals plainly set out, the role of the CEO is really to hold the ship steady. From this perspective, it really does not matter who the CEO is.

If you read the announcements, the corporate profiles and the performances of so many of the other investment companies – Calpers, TIPCO, the Harvard University Endowment Fund and the list goes on – the spotlight on some of the world’s largest investment companies are always on the choice of CIOs. Just like in a church, it is not the quality of the chairman of the board but the priest or pastor that determine the quality of the institution. In a publication business, it is not the publisher but the quality of the editor.

Then when you examine the choice of CIO at Temasek, that is the one position that they have been paying the least attention to, bringing in and out a string of light weight insiders who were essentially inconsequential to the investment decision making process.

The latest CIO, a gentleman called Tok, was essentially from a local brokerage background, not a global investment management background – someone whose world view would not be able to stand up to the onslaughts of the outrageous proposals coming to him from around the world and confidently separate the goats from the sheep.

I must caution however that in the best of these professional situations, the relationship between the CEO and the holy man will always be an awkward one. It simply must be. The chairman of a church board wants to focus on building membership from rich families like his own, the pastor thinks that the church has to spend more time with the poor. The publisher wants to do a deal with the client-from-hell for more money, the editor wants editorial integrity in the stories that will crucify that client in a story. We hear nothing about such tensions within Temasek between the CEO and the CIO. It’s like there is no separation between church and state. Again, the reason is that the board keeps that anomaly going to funnel final decisions back to itself.

Another analogy to drive home the point for a good CIO in any investment house is as important as a good spark plug in any Formula One racing machine. You have the best, most advance engine in the world, a great driver and Goodyear tyres (he he), but if your spark plug is a piece of wood, your car ain’t going nowhere.

I recall the one episode when Visa International shares were offered to Temasek as part of its IPO in 2007-8. I was told that initially Temasek did not take on its full allotment of the shares offered and then when it did, it divested the shares or most of it eventually.

My facts may be off on the actual investment finally made. But upon hearing of this incident, I enquired why would anyone in Temasek not understand how central Visa International is to the banking industry and to payment systems, maybe more important than any of the banks they invest in, and that it would make sense to go “long” on Visa, since Temasek’s stated policy is to go “long”.

I was told that the fund managers in Temasek did not know enough about Visa International to appreciate it in the first place (remember, they are brokers by background). I tried to find that one person who understood financial services to try and understand why a Temasek would sell a Visa stake early.

I came back with the distinct impression that the people who understood financial services and the people who made the investment decisions did not really talk or learn from each other. I have a theory that if a management consultant were to trace the decision flow that led to the final position in this instance, he or she would be able to see that even if there was good communication between the analyst and the fund manager, the real final decision was defaulted to … the board. Otherwise, how could such a strong cross-validating investment decision making model fail to see the value of the investment? I am happy to stand corrected on this perception if I am wrong, but I don’t think I was.

What you want for Temasek is a CIO who is highly opinionated, with vision of his or her own, with an attitude that even an entire board would find difficult to deal with and with the performance track record that gives him or her the credibility and confidence that no one can mess around with. Someone who outsiders like me can get a sense of what his worldview is on any number of industries – financial services, airlines, telecommunications, whatever.

I would put my finger on getting a strong CIO who is independent from the CEO and from the board, as the cornerstone of breaking out of this destructive circle. When the staff sees that the CEO and the board are prepared to lean heavily on a trusted CIO, and let him have his way, the sense of ownership will be restored.

If the public complains about Temasek’s returns, let the CIO and NOT Myrna Thomas to answer personally. Let his letters be worded in exactly the same way as his brain is wired for everyone to see. Let him be a colourful person, let him be a larger than life magnet in social circles, tear a fancy car down the ECP and be exactly that transparent in the way he thinks about managing Singapore’s wealth. But let his performance be measured by his own words and you will know that all is well.

Having said all this, I am increasingly convinced that the current board cannot be expected to act in any way that takes final decisions, actual business decisions, away from themselves. It’s just the way human nature is.

5. Finally, understanding the leadership of Ho Ching in Temasek. We can all pretend that this is not the issue to deal with. The management consultants can have everything else in their fancy 2000 page powerpoint slides to show where things are wrong with Temasek today and what must be done. But if nobody helps Ho Ching come to terms with the nature of her leadership, they solve nothing.

The argument that I hear from critics is that Ho Ching makes all the key investment decisions. I think I read Ho Ching enough to be able to say with some confidence that such arguments are a cheap shot. I don’t think she wants to make any of the key decisions independent of the smartest people around her. The right question then is whether she is surrounded by smart people who will help her.

I think the personality of Ho Ching and the role she plays are two of the most seriously misunderstood phenomenon in corporate Singapore today.

My personal opinion is that Ho Ching is one of the most quietly connected people in Singapore, with her feet firmly on the ground. To this day, she keeps in contact with a diverse group of people in her quiet and unassuming way, a diversity of access that would put most government members of parliament to shame. Coupled with her demeanour of approachability, I would not be surprised how many ordinary people keep her in the loop of the things around her. She thrives on that access, through her old network of friends from previous jobs, and others she meets along the way. She is nobody’s fool in this regard, for those who think she is aloof and out of touch.

She is the one person that the staff at Changi Airport tell me is the least fussed and does not abuse the VVIP complex, even as they would readily talk about several others who do. She picks up a conversation or two to get a sense of what’s going on, and goes straight to her flight whenever she can, instead of throwing her weight around in the lounge as some lesser officials are wanton to do. They like her there.

Why is this important? Because it tells me that she is what she is, and not someone who has learnt the art of saying all the right things in public but subscribing to a different set of values when making her own decisions. So, we do have to take her at her words used in recent speeches, without discounting the obvious disconnect with what we actually see.

I remember that year when she was listed as one of the “10 most powerful women in the world”. That accolade was itself such an eye-wash and a good example of how shallow PR works on the global front. It was Jim Rogers, that irascible global investor whom I also interact with sometimes these days, who recommended her to Time magazine in 2007 just because she was the CEO of one of the largest state-owned investment funds at the time.

China and Korea were saying that year that they wanted to emulate Temasek. (I wondered if the real reason Jim was singing Temasek’s praises was because they had interviewed him for Ho Chiang’s job, ha, ha!) Ho Ching had not invented Temasek, and she had done nothing to deserve that accolade, and yet she was listed as more influential than Condoleezza Rice! But there you go – Jim Rogers said so, one US media picked it up, and after that all the others mindlessly mimic the myth. That is how shallow the media can be.

In my interactions with Jim, I realise that he himself has no ability to discuss Temasek or any of the other things he recommends in any serious depth. He is not that kind of person. Yet the myth that surrounds his supposed genius continues – yet another one of the great imponderables in the world we live in.

By that time however, I had interacted with Ho Ching enough to reflect on how she would be responding to such an accolade. I know that like any savvy business person, she would use it as an imposter to good effect in positioning herself with certain people, but that it would have meant absolutely nothing to her personally. That was why she could make the decision to step down when she did, because at the end of the day, it is a cloak she wears or does not wear as she likes.

In as much as she takes a critical view of some people, she maintains the most critical of views for herself – and this people don’t see. The many critical comments in various blogs about the changes taking place in Temasek today, are quick to forget that it was she who recommended Goodyear, it was she who introduced the leadership transition and it was she who said that he had skills that she did not. She set the agenda and everybody else thinks it is their privilege to comment on it. What if she had kept quiet?

This ability to stand out of her own self is augmented with several strong values that gives her a sense of moral direction, enabling her to step out of the government mindset to introduce some of the most important changes at Temasek in its early years. This includes being the first state-owned investment company of its kind in the world to launch an annual report.

So when the Americans started yelling that SWFs were secretive, she was able to say, not us, here is our annual report. I like leaders with this moral compass, because I can read them much easier and I can see what they are setting out to do, and I can say that in following any number of leaders globally, she is one of the straightest shooters there is in the market today.

Her true sense of power comes from the many chairmans and CEOs of companies asking to meet her and pouring out all their trade secrets in the hope of some support from Temasek. Her EDB-like mind (I am not sure she was ever with the EDB, but somehow she exhibits the same traits) would absorb all of these information and become a rich repository of insights into how the different industries actually tick.

Replacing her with someone without that exposure would be to waste another 3-5 valuable years for that person to gain the insights and contacts that she has gained since becoming CEO of Temasek.

The question that arises then is, where did she go wrong and what should she do now?

If there was one important original sin that makes her position at Temasek what it is now, it is that sin of dutifully taking on the entire Temasek mandate in 2002 (like a dutiful “daughter”, for want of a better analogy), without questioning its construct. Dutiful daughters have a way of sweeping the floor, cleaning the kitchen and keeping all the stores in place, without ever questioning the design of the house itself.

In a sense, her early years at Temasek were not the time for her to question, but to understand the beast first. I think she spent a good 2-3 years opening Temasek up to others, meeting investment bankers with investment proposals, and most important of all, learning the art of hiring new recruits from the fund management, investment banking and related industries to augment the cob-webbed incumbents Temasek already had in place.

Those of us from outside these circles will not be able to imagine how interesting such exposures can be for someone who is not used to dealing with the global investment community and all the opportunities they represent, no matter how senior you are.

If you benchmark what she had achieved in transforming Temasek into an accountable organisation, with strong due diligence capabilities for the financial services industry, a clear investment arm and a private-equity arm, she has done better than Dr Teh Kok Ping of the GIC. Dr Teh, a wonderfully talented man, can be smug about the fact that his is a closer knit organisation, but his is also a simpler organisation and definitely an old fashioned one, not that any of these qualities are bad in themselves.

He would argue that it keeps the GIC very focused, which it is, but some of the investments that the GIC looks at today, it would not have even touched before if Temasek did not take a look at them first. So, the friendly rivalry between these two organisations have been good for both, as they benchmark each other.

Unfortunately, not all her board members are on the same journey as she is. She really has to let some of them go. Some of the them should let themselves go, if only because Ho Ching has a very strong sense of loyalty to her friends, which makes it very difficult for her to resolve some of the people issues objectively.

It is at the board that we get those responses that contradict the original desire to be transparent and accountable. There is no reason, for example, for Koh Boon Hwee to be both chairman AND CEO of DBS Bank AND board member of Temasek at the same time. Who will he be accountable to if his failures with DBS need to be reviewed? Yet, this influential position he finds himself in at Temasek comes at the pleasure of Ho Ching. There is also the question of what value is the former head of a taxi company as a Temasek director? Like this, if the constitution of the board is solved, I do think we strengthen the organisation as a whole.

The reason that the Middle East SWFs can operate that much more easily is precisely because they do not have that legacy institution that derived its original success from building businesses like ports and airlines that were painstakingly built from the ground up. So, there is considerable domain knowledge within the collective circles of Singapore Inc., particularly Temasek and its subsidiary companies, that is not present in a Dubai, Abu Dhabi or a Qatar, that is both a cornerstone and a stumbling block to the future that Ho Ching has in mind. (So, when you think about the Temasek board, think about retired Vietnamese wartime generals, regaling with medals on their chest.)

So in these newer countries, the investment companies keep their subsidiary companies at an arms-length instead of pretending they understand how to run them. Also, the US-trained Arabs like the thrill of the deal more than they like actually running a business, which they hand over to retired Brits to slog for them. All of these interesting quirks makes the whole process so much easier for them, even as it gets so much harder for Singapore.

This whole topic of transforming previously successful state-managed entities to make them responsive for needs of the 21st century is such a fascinating area and one that Singapore, more than any other country in the world, needs today precisely because of its original success. It is not able to renew itself because the people who made it happen are all still there.

In this regard, the organisational scientists at the local universities these days have such an important role to play to help us critically think about how this country should adapt its leadership challenges. The last I saw, there was one sloppy academic earning royalty from writing a completely useless book about a successful Singapore Airlines story that was already 20 years old when it went to print last year.

Given the fact that the true asset of an organisation is not just the funds being applied but the knowledge that is inherent in the organisation and how that is applied, a few Singaporean state-run organisations have in fact made that transition well over the past 10-15 years. Singapore Telecoms, Capital Land stand out – and I notice that neither of their senior people sit on Ho Chiang’s board.

The predecessors of CapitaLand were failing state-owned property investment companies when Liew Mun Leong came into the picture in about 1997. I think he spent about three years getting a hang of what was happening in the property world at that time, and then launched CapitaLand as a property trust in 2000.

The reason for CapitaLand’s tremendous transformation and success can be attributed to the fact that once he identified the game plan, Mun Leong took it all the way to its destination. What the organisation is today is nothing what anyone in Singapore’s government, with all their knowledge at the time, could have envisaged 10 years ago.

So, if there is one big difference between the leadership style of Liew Mun Leong and Ho Ching, it is that while Ho Ching took her ship out from its old port to sea, Liew Mun Leong took his straight to its next destination, no freeloaders allowed and no questions asked.

If Ho Ching has a clear idea of where she wants to take Temasek, I think that all its present problems will appear trivial. The creaking sounds of a stalled ship are loud and menacing. But a ship that is at full throttle to its destination will appear to be running fine to all.

Temasek had one chance to change in 2003 when she first became its CEO. It now has a second chance, if only because the global economic crisis has changed the agenda yet again and the need for change is renewed. Even Liew Mun Leong will now need to seek another port for his CapitaLand, because this crisis has changed the rules for all. Neither Temasek, nor Singapore Airlines, nor Capital Land have laurels they can rest on. Things change constantly.

I think that in the time that Goodyear was reviewing what Temasek would be faced with going forward, some of the options it must consider are the same ones that all investment companies around the world that have seen 25-40% fall in their sizes have to consider seriously. In the investment management world, there is talk about taking on more debt, as well as discussions on how to work with hedge funds to generate greater returns.

The rules have to been re-written, but nobody knows what they should be. The stakes are even higher now, the win or lose formula is not the same as it was in the days of passive investments.

There is a strong case for unlocking the value that the EDB, the private equity and the fund management parts brings to the table by freeing them from each other and allowing them to influence each other from there. This can be done either by breaking Temasek up into its constituent entities or creating self-functioning subsidiaries, all reporting to the a very virile CIO who will monitor them strictly for efficiencies of return.

All of this might point to a case of separating the investment-banking-inspired-private-equity part of Temasek from the fund management part of the organisation. Ho Ching does indeed try to run these as separate entities.

We have for example, Fullerton Financial Holding (a private-equity type business) and the Fullerton Fund Management (a fund). Both should sell services to the parent investment company, and have their returns valued independently.

The case for a Singapore version of a private equity business to be run separately from a fund management business is written on the wall already. If the current fear is that a smaller Temasek will make it difficult for Singapore Inc to participate in global deals, the counter-argument is that a streamlined private equity player will be able to attract and build its own critical mass and unique characteristics that could potentially be larger than Temasek could ever hope to be in trying to make sense of its existing organic franchise.

I think that Ho Ching and the people within Temasek work harder than any other investment company of its kind in the world. I think that the hiccup in the transition story with Goodyear had a small silver lining to it. It gave Ho Ching the chance to reiterate her commitments in a manner that her own people could see is sincere – a family friendly company that values the talent from within. I think now more than ever, she has tremendous buy-in from within the organisation to effect the changes she keeps saying she wants to. Sure, some people will have to step aside, but hopefully they will do so for the good of all.

I would like to see her make it happen. She deserves to win this time around if only because of her own good intentions. But she must unshakle her own chains first.

————–
This is one of the most difficult entries I have had to write, and it is still an unsatisfying one. I have edited it once now, and I will be editing it again to fine-tune my thoughts further. I do this only because the quality of the discussion surrounding Temasek has to improve.

—————
A note to interested readers only: Link with ED through LinkedIn, Facebook or Twitter. Whichever you prefer. Go to a page called “Subscribe to me” on this site and link to “The Banking Conversation.” You will be kept informed of future postings.