Will Temasek's ventures overseas

prove profitable in the long run?

Temasek Holdings, the biggest shareholder of Merrill Lynch, said it wants to lift its stake in the U.S. securities firm as it expects the investment will boost the value of its portfolio in the “long term.”

Temasek, Singapore's state-owned investment company, paid $5 billion for a Merrill stake in December, and said last month it's committing a further $900 million. Temasek's assets rose 13 percent to S$185 billion ($131 billion) in the year ended March from S$164 billion a year earlier, Chairman S. Dhanabalan said.

“If there's an opportunity, we would like to look at it,” Dhanabalan said. “Whether we do it depends on our assessment and risk diversification.”

Merrill's shares have fallen 55 percent since Dec. 24, when the third-biggest U.S. securities firm first announced Temasek's investment. Temasek is seeking to raise its overseas investments to diversify beyond Singapore, where it already controls six of the city's ten biggest publicly traded companies by market value.

Temasek's agreement to put money into Merrill last month came after the Singapore fund manager got compensated for its initial investment. Temasek said it will use a $2.5 billion so-called reset payment for losses from its earlier purchase toward buying $3.4 billion of Merrill stock. Merrill said at the time it will book the reset as an expense, as well as $5.7 billion of additional writedowns.

The purchase would push Temasek's stake beyond the ten percent limit for foreign investors. A portion of its new stock requires regulatory approval, Temasek said.


'Long-Term Investor'
“We're a long-term investor and we're not a conventional investor in the public markets,” Dhanabalan said. “We ride out the ups and downs of the market. But we certainly look at what the returns of the public markets are.”

Temasek, which took over state assets such as shipyards and an airline three decades ago, posted an average 18 percent annual return since its inception, he said. Its biggest investments in the city-state include Singapore Telecommunications, Southeast Asia's biggest phone company, and DBS Group Holdings, the region's largest bank by assets.

“One has to believe in investing in the longer term, whether locally or globally,” said Tan Teng Boo, who helps oversee about $250 million at Capital Dynamics Asset Management in Kuala Lumpur. “The pessimism driving the Western financial institutions down is so extreme right now that for longer term investors like Temasek it does make sense to get some exposure.”

Sovereign wealth funds make up two percent of the world's stock and bond markets, Dhanabalan added, and investors “overestimate” them. There's also a perception these funds aren't set up just to maximize returns because of a lack of governance and transparency, he added.

Temasek is often considered Singapore's second sovereign wealth fund. Government of Singapore Investment Corporation, or GIC, manages more than $100 billion of the country's reserves.


Although Temasek has shown interest to raise its stake in Merill Lynch, will it be able to earn regulatory approval?