Temasek and GIC: New Horizons in Europe

Uncertain geopolitical circumstances and a volatile international macroeconomic environment are driving change in the investment strategies of Singapore’s sovereign funds. Temasek and GIC are seeking investment opportunities free from the trade tensions between China and the West. Opening offices in Europe has begun a process of focusing away from Asia.

What are Singapore’s sovereign funds?

Despite having a tiny population of about five and a half million people, the city-state of Singapore comes second only to China in the size of its sovereign wealth funds. Its two best known are Temasek and GIC with portfolios valued respectively at €453 billion and €710 billion. The returns from the funds have allowed the Singaporean government to make investments in education, R&D, healthcare, and improving its physical environment. Singapore’s sovereign funds grew up and expanded successfully in regional markets in Asia. They prospered during the time of globalization which saw manufacturing migrate from the developed world which led to the rise of the “Asian Tigers.” However, the funds are now looking to diversify geographically for several reasons.

Why are Singapore’s sovereign funds diversifying their international investment portfolios?

The macroeconomic environment and higher interest rates have made returns from markets like China less appealing. In a time of geopolitical uncertainty, the Singapore funds are diversifying their portfolios away from their over-dependence on a few investment destinations like China. The investment appeal of China has diminished because of rising trade tensions which has led the US to nearshore, reshore, and onshore manufacturing production, which was previously undertaken in China. The funds aim to do their part in confronting the existential threat of climate change. They want to address its challenges and seize the opportunities by investing in climate change mitigation, adaptation, and transition solutions. The two funds believe that today, security and resilience take precedence over globalization.

The two funds believe that today, security and resilience take precedence over globalization”

What factors and trends are attracting Temasek and GIC to increase their investments in Europe?

The technology and life sciences investment potential has been drawing the Singapore funds to the US. Europe does not have the high-flying success in these sectors yet. But Europe’s support for start-ups, fintechs, and its “Green Deal” could make Europe a sustainable late bloomer in these industries. Singapore’s funds are increasingly investing in countries offering greater regulatory certainty than exists in many emerging markets to which they are exposed. However, increasingly heavy-handed regulation of foreign companies arising from trade tensions is making US investment less appealing. By contrast, Europe has not erected such high barriers, and Temasek and GIC now have offices in Paris, London, and Brussels to take advantage of the opportunities.