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00:03As I said, this is a massive fund. As of the fiscal year that ended last March, so I'm not
00:08going to say what happened for this year.
00:09They have $340 billion of assets under management.
00:13Dilan Pillay has overseen this fund as it has changed pretty significantly from back in 2011, primarily being an investor
00:21in Singapore assets, today being very different.
00:24Before we get into some of the current events and what's been going on in markets, just give us a
00:29sense of that transformation that you've seen.
00:32Actually, the transformation was done by my predecessor, Ho Ching.
00:36She was brought into Tomasic to make us more of a global investor.
00:39When she first came on board, 97% of our assets were Singaporean companies.
00:43By the way, we own our assets. We don't manage it for anyone.
00:47By 2011, we had made it something like about 56%.
00:53Today, Singapore assets are just 41% of our total net asset value.
01:00That transformation that's been done over the last, I would say, 20 years has been predicated on investing in global
01:06markets.
01:06We first started in Asia in the first decade of the 2000s, and then in the second decade, more into
01:12the U.S. and Europe,
01:13because we felt that a balance between developed markets and emerging markets was required.
01:17We also started to increase our allocation into funds and asset management platforms that we set up.
01:23Today, we have a fairly balanced portfolio, which is 41% of the Singapore companies that we control,
01:29roughly about $150 billion of revenue that's either consolidated with a balance sheet
01:34or of companies that we control with significant minority stakes.
01:3930% is in global investments all over the world.
01:42The balance of 23% is in funds, asset management companies,
01:46and partnerships that we have with either financial institutions or corporates.
01:51So it's fairly balanced, I would say.
01:53And you were speaking before, and you were saying about half of the fund is liquid,
01:57and half of the fund is illiquid in private markets.
02:01As we sit here today, the world feels very dynamic.
02:04We were thinking about AI disruption, now we're thinking about an oil shock
02:08that could potentially set inflation spiraling.
02:11As someone who tries to toggle between private and public liquid and illiquid,
02:16how do you think about catalysts that seem to be coming at us increasingly frequently?
02:21Yeah, that's a good question.
02:23So if I go back to 2011, we were 80% liquid, 20% illiquid.
02:28By the end of the decade, we were sort of like 55% illiquid, 45% liquid.
02:33Today, we're about half and half.
02:35So 50% is in liquid, 50% is not liquid.
02:39If you look at this chart here, you will find that we're primarily equities house.
02:44So you take away the private credit of 2%, core plus infrastructure of 1%, 97% is in equities.
02:50And it's 48% liquid and 49% illiquid.
02:54So it's a balanced portfolio.
02:55Now, why is it that we went into private markets?
02:57In a low interest environment in the past decade,
03:00you could actually argue that you could earn the illiquidity premium within a reasonable time frame.
03:06So in the previous decade, time to monetization to public markets was in five years.
03:11It then went into eight years.
03:12Today, you're looking at past even a decade.
03:14So the question for us today is whether you will get the illiquidity premium in a higher interest rate environment.
03:19So that's why we've decided to put a little bit more capital into liquid strategies.
03:24That includes public markets, investing index, indices, and things like that.
03:28Because we feel that in a world where there are more surprises, shocks coming from more frequently, disruptions like AI
03:35in this time around,
03:36it is important to have enough liquidity to be able to pivot, change strategies, pivot, decide where you're going to
03:43put your chips for the longer term,
03:45or even rebalance for the shorter term.
03:47And so as a result of that, we've decided that we should maintain a certain level of liquidity in our
03:54portfolio
03:55because we do think there's a premium in being liquid today.
03:59That's our view.
04:01So I want to get into just how much you are planning to continue to increase the liquid versus the
04:07illiquid part of your portfolio.
04:09I mean, is that significant in terms of how much more you have to go?
04:13No, I think we're there.
04:14I think for now, for every dollar we invest, we're not going to do it in a programmatic way,
04:19but I think it would end up being sort of 50-50.
04:22You know, some years that may be a little bit more because of opportunities, some years a little bit less.
04:27But we'll make sure in the long run we maintain that balance.
04:30We'll get into the private side of things, but before we leave this, I want to get your thoughts out
04:35on how you respond
04:36and be dynamic in the face of a potential oil shock since that's the latest catalyst in addition to AI
04:42disruption and credit fears
04:43that seems to be targeting investors.
04:46Do you respond to that?
04:47Does it make you pivot?
04:49You know, things are all shocks.
04:51We've had to live with it for a long time.
04:54And parts of our portfolio will be impacted by it.
04:57For example, we own an airline.
04:58By the way, for those of you who fly regularly, please consider our airline.
05:03But, you know, whenever you have something like this and what's going on in the Middle East,
05:07straight away, even though the Middle East is a small portion of revenues,
05:09people think about the potential of increase oil prices on your P&L.
05:14People might travel less because of conflict and things like that.
05:17Every time there's something like the avian flu, your airline gets impacted by share price.
05:22So everything gets impacted if you own an airline.
05:24That, look, you know, some parts of our portfolio clearly will be impacted by rising oil prices.
05:30You know, power generation companies which have inputs from natural gas and things like that.
05:34But the bulk of our portfolio is not.
05:36It's quite inoculated from the impact of oil prices.
05:39Obviously, for the financial services sector, it's a proxy to the broader economy.
05:43So that part of it gets impacted.
05:45But we've got a fairly balanced portfolio.
05:47I'm less concerned.
05:49When you talk about the 50% that is in private markets, I just wonder how much – you said
05:552% is in private credit.
05:56How closely you're watching what has percolated out that people see potentially deepening?
06:02Really, the epicenter right now, BDCs, private credit funds tied to software.
06:06Yeah.
06:07So, first of all, I would say that private credit is a relatively new part of our portfolio.
06:11You know, we've always been investing in it for the last, I would say, 20 years.
06:15But we started the rampart about 10 years ago.
06:18So the 2% of our portfolio value, which is roughly about $7 billion U.S., it's really something that
06:23we've built in the last 10 years.
06:25We have a separate entity, a credit hybrid solutions entity that we spun out as a wholly owned subsidiary.
06:32And that has a very clear mandate, you know, get us something like a 5% to 6% cash
06:36yield on an annual basis, a total return of maybe, you know, low double digits, 11% to 13%
06:42with a leverage cap and a cap on PIC because we want the cash yield.
06:47And with that mandate, they've managed to do quite well.
06:51The credit quality is keeping up.
06:54Besides that, we have investments in funds with people that we believe are best in class.
06:59And, you know, so far, they're holding up.
07:02So it's really a question of manager selection, the kind of part of the credit sector that you want to
07:09put your money with.
07:11And then you take – you have to figure out whether, you know, the asset quality is there, whether the
07:18fund manager is doing what they're doing.
07:20And so far, you know, I'm not as concerned with our credit portfolio.
07:24So there are two ways to ask this.
07:25First of all, it's only 2% of your portfolio, so it's pretty small.
07:28You address the one of how is your portfolio managing through this.
07:32The other way of saying this is at what point do you get excited about where you can potentially expand
07:37and get involved if there is dislocation?
07:39So that's always the exciting part, isn't it?
07:41Because if you can get it cheaper, that's the best way to make returns, you know.
07:45It's all a question of the entry-level price.
07:48So when there's a lot of froth in the market, you take on more risk.
07:52It's more expensive to get the returns that you want.
07:54So the question for us – you see, you still have to go back to the question of asset quality
07:58and the pricing for the asset quality, right?
08:00And so I think that there will be opportunities for us to partner with the funds that we are invested
08:05in to look at those opportunities at the right time.
08:08You know, you have to – it's opportunistic, okay?
08:12It's opportunistic.
08:14And it's not going to be a major part of our portfolio.
08:16We're still going to be equities-focused, right?
08:18So maybe private credit can go up to 5% of our portfolio over the long run.
08:22But we don't want to change the DNA of the firm.
08:25You know, it's primarily equities firm.
08:26Now, why do we do private credit?
08:28Well, it's simple.
08:29It's a little bit of a diversifier from our equities exposure.
08:31It gets us up the capital stack compared to where we normally would be.
08:35But the most important thing is it gives you market signals of what will happen in the equities piece of
08:40your capital structure.
08:41So that's what we look for.
08:43What's the signal right now?
08:45You know, certain asset classes or certain sectors that we're invested in, we've got to be very careful about looking
08:52at the balance sheets of those companies
08:54and what it means in this cycle today and, you know, whether the cash flows that are underwriting are going
09:00to be strong enough, you know,
09:02to withstand volatility or shocks in the system.
09:05Shocks in the system is one thing.
09:06Disruption as a result of the new technology.
09:09So how do you identify who's prone to it, whether the software shock is really specific names that are going
09:15to go to zero
09:16and others that are going to be incredibly successful or some kind of widespread replacement?
09:21So I think, you know, with what we've seen the last few months, things that you didn't think would be
09:26disrupted are becoming disrupted,
09:27or at least the perception of disruption is very high.
09:30And so you now have to think about other things that you're investing in and what is the likelihood of
09:34disruption,
09:34because today the reality is that disruption may come sooner than you've expected before.
09:40And therefore, to what extent are companies prepared for that?
09:44Now, I would say the counterbalancing to AI disruption is AI adoption.
09:50You know, so if you have companies that can adopt AI to accentuate their business models
09:55and be able to not just withstand the shock of disruption but actually thrive in it,
10:00that's the most important thing that we look for.
10:02And that's what we're doing today through our portfolio.
10:04Are there certain types of companies that seem like they are able to take advantage of this disruption
10:12versus just those that are looking to potentially survive through it?
10:15Yeah.
10:16So, look, you know, even with software companies, right, which are in the news all the time,
10:19if you're mission critical and you know how to use it to actually accentuate your product offering,
10:25it's a good place to be in because no matter what, we're still going to need software.
10:29It's not like AI is going to take over and, you know, the entire software sector is going to dissipate.
10:34But you've got to make sure you can pick the right companies to invest in.
10:40I think that AI is going to have a profound impact on sectors like, you know, pharma, biotech, you know,
10:47drug discovery, drug development.
10:48I think it's going to have a profound effect.
10:50And so those companies that partner for AI solutions are going to be a beneficiary.
10:57The question is just when.
10:58It's a highly regulated sector, so a lot of things have to happen for you to see the full benefit
11:03of AI adoption.
11:04So you're talking about how things are pretty dynamic and these are things you can't know right away.
11:09And so that's one of the reasons why you want to have a bigger proportion of your portfolio in liquid
11:13versus private companies or illiquid.
11:16Can you give us a sense of which companies you'd rather own in your liquid versus illiquid?
11:21Is there a certain type of asset class or a certain type of industry?
11:28Yeah, so look, you know, you've got to, when you look at liquid, you've got to figure out which part
11:33of your portfolio is really for the longer term, and that's compounding.
11:37So you've got to look for companies that you feel can be compounded.
11:40Some of the max seven, you can take the view, you can compound for a long period of time, you
11:44know, if they keep innovating at the pace that they're innovating.
11:49There are other companies which we feel in the deep tech sector, et cetera, that could also be compounding.
11:54You look at where the choke points are and demand versus supply, and you can figure out that some of
11:59these companies could be companies owned for 10 years in the public markets, you know.
12:04You know, there is going to be more convergence between AI and climate adoption, climate tech adoption, okay?
12:14And I think that that's what's going to help with climate change transition for many of us.
12:19And I think that that's exciting for us to look at and see which companies will be prime beneficiaries of
12:26that.
12:26So there are many different sectors where you can look at it differently now because of AI.
12:31You talk about returns, and you've delivered some pretty significant returns investing in private markets over the years.
12:38And I just wonder, you know, you expect bigger returns for taking bigger risk.
12:43And there are times that feel like a better time to take more risk and times when maybe not so
12:48much.
12:49How do you characterize the moment we're in right now?
12:53So I think it's probably the most trying time to be a long-term investor.
12:59It really is, you know, because if you're trying to invest for the long term, you're trying to invest through
13:03market cycles, you know.
13:05And nowadays, with the disruptive forces out there, you know, what exactly is the cycle for your business model?
13:13You know, are you continually transforming your business model for that?
13:17And I think a lot of it depends on the industry, the company, the psyche of management, and things like
13:23that.
13:23Even we as a shareholder, you know, an investor, are pushing for companies to continue to always be on the
13:30edge of transformation.
13:32And I think that that is the biggest issue for us, you know, as a long-term investor.
13:37So if I look at what concerns us as a long-term investor, what's on the horizon for us?
13:42First of all, it's geopolitics. It does impact.
13:44Secondly, it's geoeconomics. What happens for the U.S. dollar does impact our returns, for example.
13:50The third would be technology.
13:52You know, not just in disruption, but how do you use technology to actually improve things?
13:56You know, not just in business, but in the world.
13:58And finally, your investor's strategies, they take all these things into account.
14:01So, you know, in that sense, you know, 10 years ago, we didn't have to think so much about geopolitics.
14:06You know, geoeconomics are fairly stable.
14:09You know, technology disruption was identifiable.
14:13And then finally, your investor's strategies are pretty much linear.
14:17Today, it doesn't happen that way anymore, I think.
14:19Talking about geopolitics, do you think that people are overly sanguine right now in markets about the geopolitical risks?
14:24I think the market has taken a view that some shocks can be shorter in duration than otherwise.
14:31And so, therefore, they are pricing the risk, but they feel in the longer run, you know, you might be
14:37able to get around the risk and still be all right.
14:41I'm not smart enough to know whether that's the right thing to do or not.
14:43I'll just watch and see where we put our funds to work.
14:48But I do think that there is a certain amount of, you know, I think markets are relatively sanguine with
14:53everything that we're seeing.
14:55You know, and let's face it, right, I mean, since what's been happening in the Middle East, the markets really
15:00haven't moved down that much.
15:02You know, S&P is down, what, 1.5%, 1.6%.
15:05You know, our financial year is 31st of March.
15:08What happened 2nd April last year?
15:10And you saw with the way the market moved down.
15:13Thankfully, our financial year is 31st of March.
15:16You know, not, you know, or thankfully that Liberation Day happened on 2nd April.
15:22Anyway, this time around, you know, I've still got 27, we've still got 27 days to go for our financial
15:27year to close.
15:29It's better to look out five months down the road because something happened to turn it around.
15:3227 days is interesting.
15:34So let's see.
15:36I want to finish up on dollar exposure because...
15:40But can I just add something?
15:41You see, you know, we're allowed by our shareholder, and shareholder doesn't get involved in our business at all, to
15:46take more risks because we're an equity investor.
15:49So we're high on the risk, I would say, on the risk curve.
15:53And our threshold for paying, therefore, has to be higher.
15:56And so the requirements for returns are, therefore, you know, much more than what would be required for a sovereign
16:01wealth fund.
16:01So that puts you also a little bit more on edge, right, because, you know, you have a responsibility of
16:07trying to deliver those outsized returns.
16:09And in inflation-adjusted world where interest rates are higher and possibly higher for longer, yeah, you know, we should
16:16expect to get those higher returns, you know.
16:18So we have to put that on ourselves.
16:19Yeah, so you notice some of the risks out there.
16:22I do want to finish up with the risk of the dollar because about half of your portfolio, I believe,
16:27is exposed to the dollar.
16:29Directly, 41%.
16:3141%.
16:31So I'm just curious how you're hedging.
16:34Are you planning to reduce exposure to the dollar in order to avoid some of the fluctuations, or are you
16:39going to double down?
16:39So the most trying time was the second quarter of last calendar year, when the dollar began to depreciate significantly
16:49against the Singapore dollar.
16:51And Singapore dollar is our reference currency.
16:53And in any event, 50% of our exposure is in Singapore dollars.
16:57So it moved, I think, almost 5% or 6% during that time.
17:02It's about 7% down year on year.
17:05But it went up a little bit in the last few days.
17:07So that just tells you that the dollar is truly, you know, the currency you go into in times of
17:12risk.
17:14So what we tried to do then was we figured, okay, we'll hedge part of the dollar denominator portfolio, which
17:21we did.
17:21A significant amount, I would say.
17:24And the cost was fair, was okay.
17:27But as we got along, everybody else had the same idea.
17:30People were not rotating out of U.S. dollar denominator assets to hedging for returns.
17:34And the hedging costs went up to, what, 2.5%, 2.6%.
17:37So today the cost of hedging doesn't make sense unless it's tactical for a shorter period of time.
17:42And so we now have to basically put in place what we will call natural hedges,
17:47which really means you have to invest in things that will give you a return that outpaces expected dollar depreciation.
17:54But, you know, the events of the last few days reminds us that the U.S. dollar is still, you
17:59know, the global currency of choice.
18:03It's not just a reserve currency.
18:05It's a safe haven currency for many things that happen in geopolitics and what happens in the world.
18:10And so I think we've got a good balance, I would say.
18:14The dollar has strengthened.
18:16The policy of the Treasury Department is to have a strong dollar.
18:19So in that sense, would that change anything that we're doing?
18:21The answer is no.
18:22We'll continue to invest significantly in U.S. and U.S. dollar denominated assets.
18:26Well, there is so much more that I want to ask you, but unfortunately we have run out of time.
18:30Dylan Pillay of Temasek, thank you so much for being with us today.
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