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Temasek Holdings outperformed Berkshire Hathaway?

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Update:  Based on R’s comment below, it appears that the comparison is done from the viewpoint of Temasek Holdings being a shareholder, not from the perspective of Temasek’s shareholder MoF.  However, since the state press provided no details as to how the 0.7% is calculated, I can only guess that this figure was from the viewpoint of a Berkshire Hathaway shareholder instead of BH itself.  If so, then the state press did an apples-to-oranges comparison.

On Friday June 19th, Alvin Foo(l) of the Straits State’s Times wrote a piece comparing Temasek Holdings’ performance of the past ten years (1999-2009) with that of other investment corporations.  One comparison in particular caught my eye; namely that Temasek delivered an annualised shareholder return over the 10-year period of 5.4% compared to Berkshire Hathaway’s 0.7%:

Temasek’s returns were also better than that of long-term investors like Swedish investment firm Investor AB, which delivered 3.7 per cent, and Berkshire Hathaway, which yielded 0.7 per cent.

Some questions ought to be asked as of how the figures of 5.4% for Temasek and 0.7% for Berkshire were obtained.  A blog post by The Singaporean Skeptic pointed out that Berkshire delivered a compounded annual return of 6.4% over the 10 year period.  That aside, Berkshire’s per share book value grew 9.3% annually from 2002 to 2008.  Relying on share price which fluctuates wildly due to investors’ irrational exuberance paints a misleading picture of a company’s actual performance.  How low is the State’s Times willing to sink to?

That aside, one should ask how exactly was the 5.4% return figure calculated.  Unlike Berkshire, Temasek is unlisted and has no share price.  How then could one make use of the notion of total shareholder return?  Exactly what formula did the Straits Times use? Secondly, Berkshire Hathaway doesn’t pay out dividends (and never had a stock split hence the high share prices), because Warren Buffett believes that dividends should be paid out only in the case where more money can’t be obtained through re-investments of those funds:

“We feel noble intentions should be checked periodically against results. We test the wisdom of retaining earnings by assessing whether retention, over time, delivers shareholders at least $1 of market value for each $1 retained. To date, this test has been met. We will continue to apply it on a five-year rolling basis. As our net worth grows, it is more difficult to use retained earnings wisely.”

Source: Berkshire Hathaway’s Owner’s Manual

Mr. Buffett:: “We will either pay large dividends or none at all if we can’t obtain more money through re-investment (of those funds). There is no logic to regularly paying out 10% or 20% of earnings as dividends every year.”

So again, how could one invoke shareholder return?  Thirdly, nowhere was it mentioned that the figure of 5.4% specifically excluded shareholder returns due to sales of unlisted assets transferred from the government of Singapore at likely a pittance.  This point was made earlier with reference to Finance Minister Tharman’s boast that Temasek’s portfolio grew a net S$56 bn since 2003 excluding all capital injections.  In the absence of such a statement, one cannot conclude that the 5.4%, however it may be calculated, excludes such proceeds.

Furthermore, one should wonder why the metric of TSR was selected for comparison with Berkshire Hathaway and Temasek.  Unlike Temasek, which recently (and nonchalantly) offloaded its BofA and Barclays stakes at estimated losses of about $5 bn, Berkshire Hathaway invests for the long term and doesn’t engage in much selling, hence that probably explains the low 0.7% return rate (assuming the ST was honest with that figure) coupled with their no-dividend policy.  It looks like the ST is being disingenuous again when it deliberately picked TSR as a basis for comparison.

Finally, the claim that Berkshire only delivered 0.7% annually utterly fails the giggle test.  Who on Earth in their right mind would believe that the Sage of Omaha has seriously underperformed current depressed (due to the downturn) fixed deposit rates in Singapore?  OCBC’s fixed deposit rates delivers a 0.8% rate currently.

Update: Someone wrote in to the Straits Times alleging that the ST did an apples-to-oranges comparison.  Full letter archived here.  An extract:

It is correct to say that Temasek did better than an investor who bought Berkshire Hathaway stocks in March 1999 and held on to them until March this year. However, share price not only reflects a company’s performance, but also incorporates an element of investor sentiment. This sentiment can be greatly influenced by factors beyond the underlying performance of the company. Thus, a comparison of investment records should not be made by comparing Temasek’s shareholder returns against Berkshire’s share price.

It is more appropriate to compare Temasek’s performance against Berkshire’s shareholder equity value. This value stood at US$57.9 billion in the first quarter of 1999 and was reported at US$109.3 billion in the fourth quarter of last year, the closest comparison against Temasek’s November portfolio.

This represents a 6.56 per cent annualised growth, which is somewhat higher than Temasek’s return of 5.4 per cent. Berkshire’s shareholder equity in the fourth quarter of last year also declined 8.5 per cent from that in the first quarter of the year.

Also of note was this comment posted on the letter on the webpage:

Would Temasek be brave enough to publish the performance figures of its portfolio after excluding the assets that were transferred to it by the MOF at cost?

It is an insult to Warren Buffett by comparing Temasek with Berkshire Hathaway! The man buys a business and builds it up from scratch whereas Temasek had a lot of its assets transferred at way below market value.

ST has again displayed very poor professionalism in that article!

Posted by: cchan4 at Mon Jun 22 10:18:25 SGT 2009


Written by defennder

June 21, 2009 at 10:56 PM

Posted in Singapore affairs

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  1. […] Temasek Holdings outperformed Berkshire Hathaway? « Furry Brown Dog […]

  2. It’s been quite a while since this post/issue, but I wonder what’s the latest? Apart from the forum letter(s), has anyone directly emailed Alvin Foo or the editors seeking clarification?

    In any case, I believe in giving credit when/if it’s due. The ST article also mentions the MSCI indices. Are the numbers/comparisons for those valid, as far as people can tell? If they are, then the main claim of the article (that Temasek performed as well or better than others) still stands, no?

    Doesnt Matter

    July 21, 2009 at 11:54 PM

  3. You seem particularly keen to award the Straits Times. I certainly hope you personally aren’t angling for promotion at SPH.

    Did you miss the part where I pointed out that we don’t know how much of the calculated shareholder return is due to sales of unlisted assets transferred from the government to Temasek under market prices?

    And no, I didn’t write to the Straits Times. I wonder if someone else did?


    July 22, 2009 at 12:04 AM

  4. i wasn’t saying that the ST ought to be given credit in this case. it was really just a question. in any case, i dun see how using pseudonyms would get people promotions.

    i was actually referring to the 31% drop in portfolio value for Temasek, vs 44% and 45% for the 2 MSCI indices. do these numbers make for valid comparisons/conclusions?

    re: the issue of shareholder return, your investopedia link boils it down to “the total amount returned to investors”. while i readily admit (here and elsewhere) to being naive about investments, this definition doesn’t necessitate having a share price, which was one of your points.

    my first naive stab at how they calculate TSR would simply be something like: “whatever assets that MOF transfers to Temasek, past or present, how much are those assets worth now, and what annualized rate of return can be calculated from that”. would that kinda address the pt abt “sales of unlisted assets…”?

    Doesnt Matter

    July 22, 2009 at 2:33 PM

  5. DM,

    As I pointed out in a previous comment, the 31% drop in portfolio gain appears to include one-off sales of assets. Temasek would have lost a lot more if one specifically excluded sales of such unlisted assets. How is a comparison between a sovereign wealth fund with state backing and a stock index valid? Did the MSCI World Index receive any asset transfers over the same period?

    You said you believe in giving credit where it is due. My question to you is why do you believe the ST deserves credit for a misleading comparison?

    Please look closely at the definition of TSR. TSR is calculated from the point of view of a shareholder. What does capital gain mean to you?


    July 22, 2009 at 3:03 PM

  6. to be precise, i said “I believe in giving credit when/*if* it’s due”, meaning that i didn’t indicate my thoughts either way.

    actually, on this issue, i’m still really trying to determine for myself what all the questions/doubts floating around really amount to. while i’ve stated elsewhere in this blog that i think the doubts are valid, i’ve not convinced myself yet (unlike many others) that these doubts really translate into something more sinister.

    for example, in the post about tharman’s disclosures, you acknowledged a factual error in your point abt capital injections. (very decent of you, if i may add. my respect, again). so, what was a valid doubt was refuted in the light of more information.

    re: MSCI, i was actually asking, since those are stock indices (i think), and temasek’s portfolio presumably has not just stocks, is that aspect of the comparison valid? and if not, what would be a more suitable comparisons (after accounting for capital injections, etc), if any? hedge funds?

    re: one-off sales of assets. i did a quick calculation. suppose TH’s portfolio was $100B, then dropped by 31% to to $69B. even after accounting for the ~$12B from the sales of the 3 power generation companies, that’s $57B, a 43% drop. that’s similar to the MSCI indices. which is why i ask how valid the comparisons are.

    also, my guess is that the TH portfolio was more on the order of $200B or more, otherwise the $114B gain from 2003-2008 would be rather astounding. in which case, the $12B accounts for an even smaller percentage. i wonder if those were the only asset sales. i guess sales of that magnitude don’t escape people’s collective notice easily, so maybe you know of others?

    Doesnt Matter

    July 23, 2009 at 12:19 AM

  7. re: TSR. is the pt that MOF can transfer assets to TH below market prices, then TH sells them at market price, so what was say a $5B injection looks like a $10B gain? If so, point taken; that would indeed inflate TSR, if the TSR calculation includes these.

    to clarify: are these asset transfers the same as (or considered as part of) capital injections?

    though i wonder also: i presume the ST doesn’t have really have priviledged access to TH data, so they must have use public domain info to get their number of 5.4% TSR. Would be interesting if someone used that same data and crunched her/his own numbers under various assumptions/formulae…

    Doesnt Matter

    July 23, 2009 at 12:50 AM

  8. re:privileged data, I would like to believe that the figure came from Temasek Holdings themselves. Of course, there is no proof or anything from me. Just a note that the TSR figures can be gotten from the Temasek Review. And the figures for 10 years TSR by market value for 2007 was 9% and 2008, 8%.


    July 24, 2009 at 12:12 AM

  9. R,

    Thanks for the pointer. The TSR portion of the 2008 Temasek Review can be found here. 2008 is their latest, 2009 not out yet.

    Their definition of “TSR by market value is the compounded annual return over a specified period. It includes changes in the market value of our portfolio, dividends we paid, and nets off any new capital we receive. For unlisted investments, we track the movements in shareholder funds in lieu of market price changes”.

    I’m not quite sure what “movements in shareholder funds” means tho.

    Doesnt Matter

    July 24, 2009 at 10:54 PM

  10. amazing stuff thanx 🙂


    August 7, 2009 at 8:59 AM

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