Interview With 20 PE People Dialogue With Wu Yibing: Temasek'S China Investment Methodology

"We have created a resilient portfolio that has more effectively resisted the impact of the new epidemic. The time node of March 31 may be the lowest point in the global capital market, but we still have a strong balance sheet. " Recently, Wu Yibing, Temasek's co president of global enterprise development and President of China, said in an interview with 21st century economic reporter.

On September 8, Temasek, which has 46 years of investment experience, disclosed its latest financial data. According to the financial report, as of March 31, 2020, the net value of Temasek's portfolio was s $306 billion, an increase of S $120 billion in the past 10 years and about tripled in the past 20 years.

Affected by the spread of Xinguan epidemic and the global economic downturn, Temasek's one-year total return to shareholders was - 2.28%. "It's negative, but it's higher than other comparable indices." Wu Yibing stressed.

For Temasek, long-term returns are more important than a particular focus on the performance of one-year returns. In the 46 years since its establishment in 1974, Temasek's compound annualized total shareholder return has reached 14%, and its 20-year and 10-year total shareholder returns are 6% and 5% respectively.

At the same time, it is worth noting that for Temasek, an international investment company from Singapore, the proportion of the Chinese market in the portfolio has increased again after 16 years of entry into China. Based on the location of the underlying assets, Temasek's portfolio in China and Singapore accounted for 29% and 24% respectively. For the first time, China's market surpassed Singapore's local market and became Temasek's largest holding country.

Why does Temasek insist on its heavy position in the Chinese market and what new opportunities does Temasek see at this stage? As a long-term investor across the primary and secondary markets, what investment strategy does Temasek pursue? How to deal with and adjust to the epidemic situation and how to ensure the stability of long-term returns?

China market becomes Temasek's largest heavy warehouse market

21st century: for a long time, China has been Temasek's largest investor except Singapore. This year, the situation has changed. Temasek's position in the Chinese market exceeds that of Singapore's domestic market for the first time. What are the main reasons behind this? Why does Temasek insist on heavy trading in China?

Wu Yibing: Temasek's investment scale in China is actually increasing every year. There are two main reasons for this increase. First of all, Temasek has long been driven by structural trends to invest, and its overall portfolio is resilient to a certain extent. Since this year, the new pneumonia epidemic has accelerated some structural trends that we had been optimistic about, so the overall portfolio has benefited, and the proportion of the portfolio in China has increased.

Secondly, since the outbreak of the epidemic, China's capital market has performed better than the global capital market. The market value of Temasek's portfolio in China has also risen more than the index of China's capital market, so our overall portfolio performance is still good.

At the same time, it should be noted that Temasek's investment is based on specific investment opportunities from the bottom to the top, rather than preset investment percentage in each region. At present, we have great confidence in China's capital market and enterprises conforming to the structural trend. We will further increase investment when we see good opportunities.

21st century: what structural trends Temasek is optimistic about and what investment opportunities are there?

Wu Yibing: the structural trend that we are optimistic about is happening on both the supply side and the demand side. In fact, China has also undergone changes consistent with the global trend in the past five years.

First of all, from the demand side, social development has brought about three obvious trends: the first is "longer life span". With the increase of people's life span, medical and health industries have been developed by leaps and bounds. As a result, Temasek invested in Xinda biology, Baiji Shenzhou, oukangweishi and other companies.

The second is "accumulated wealth". People's life is getting richer and richer, which leads to consumption upgrading, and the transformation from product-based consumption to experience based and service-oriented consumption in the past has brought opportunities for new business models. The third is "sustainable life". People are increasingly emphasizing sustainability, focusing on energy conservation, environmental protection and green economy.

The trend on the supply side is the improvement of supply quality brought by digitalization, such as the continuous development of sharing economy, more intelligent systems and a more interconnected world. Around these three aspects, Temasek has invested in didi travel, express, ant group and other enterprises in China. We have been laying out these trends for the past five years, and the epidemic has accelerated the development of these trends. For example, the digital transformation of many industries has become faster.

21st century: from an industry perspective, Temasek has the largest proportion of investment in financial services. What are the main reasons for this? In the past two or three years, the risks of P2P related financial technology enterprises in the Chinese market have been exposed. Has Temasek been affected?

Wu Yibing: Temasek's investment in the Chinese market has gone through three stages. The first stage was when Temasek entered China in the early 2000s. Before establishing the local investment capacity, we mainly invested in the indicative banking industry, because it is a barometer of China's economy.

Later, Temasek established a professional and localized investment team, which allowed us to dig deep in different industries. So we have entered the second stage of investment. We have found, helped and invested in a number of leading industries in China. For example, in the financial industry, we have gradually moved from banking to non banking finance, including insurance. At the same time, we have also entered other fields and invested in Alibaba, meituan review, Tencent, etc.

In recent years, we have begun to pay more attention to the emerging fields of science and technology, such as TMT and Malaysia, and started to pay more attention to the emerging fields of science and technology, such as science and technology. While the proportion of banks in other sectors gradually decreased year by year.

In the field of financial technology, we believe that technology can help banks and make traditional finance more inclusive and accurate. So we have invested in financial technology enterprises like ant group, because it has indeed achieved inclusive finance through technological means. For example, the essence of yu'ebao is inclusive financial products, and there are great opportunities for consumer finance on the loan side.

We think that it is not necessary for us to find out the core of the regulation for the development of P2P enterprises in the field of short-term investment rather than find any regulation for the development of financial enterprises.

Long term investment and heavy position investment across the primary and secondary markets

21st century: what measures has Temasek taken to deal with the crisis and risks in the face of uncertainties such as the new crown epidemic?

Wu Yibing: first of all, Temasek is a cross generational long-term investor. We are not particularly concerned about short-term fluctuations.

Second, when large fluctuations occur, we can see more opportunities for portfolio adjustment. At a time when all assets are undervalued, we certainly hope to go against the trend to further expand our position.

Third, in terms of risk management and control, we should ensure that our portfolio companies can withstand the big waves before the big waves come. Temasek has a strong balance sheet, even at its lowest point on March 31, which shows our resilience.

21st century: as you mentioned, Temasek sees opportunities for adjustment in volatility. We noticed Temasek bought pinduoduo for the first time in the second quarter. What is the value judgment behind this? What is the investment logic of Temasek across the primary and secondary markets?

Wu Yibing: first of all, we can't comment on the operation of single investment or secondary market, because it contains a lot of sensitive information. In the secondary market, Temasek has a lot of subsidiaries or funds are operating very frequently. We can't track all reports in real time. We can only say that it is our normal investment process and does not represent any special consideration.

Temasek's investment strategy is very different from that of most investors in the primary and secondary markets. Because we are industrial investors, we are also a relatively concentrated investor. The investment of more than 400 billion yuan in China is mainly concentrated in dozens of target companies. We prefer long-term investment.

In the primary market, because we manage our own funds, we can make long-term investment. So our goal is not to invest in a company in round C and sell it after it has gone public 10 times. On the contrary, we hope to have long-term cooperation with the invested company. If we have a very detailed understanding of its fundamentals before it goes public, we may continue to buy it after it goes public.

In the secondary market, our large position also reflects the structural trend. For example, in the face of the trend of "longer life", China's innovation drug reform is the trend and opportunity. We believe that Xinda bio is one of the leading enterprises, so we have been increasing the warehouse.

As far as we are concerned, it is not just a milestone for the operation of enterprises in the capital market. For example, Cinda bio can raise funds in the primary market or in the secondary market. If the primary market is financing, we will continue to increase the position as PE investors; if the secondary market is listed, we will further buy as the secondary market investors. For the leading enterprises we see, our goal is to become an important partner with them for 10 or 20 years, so we will consider increasing the position when we have the opportunity.

21st century: so for Temasek, what are the criteria for triggering a reduction?

Wu Yibing: reducing holdings is a normal operation. We are fundamental investors and will constantly evaluate the intrinsic value of the company according to the discounted cash flow. When the capital market is particularly fanatical and the actual value of the company exceeds the intrinsic value too much, we will appropriately reduce our positions a little, hoping to reserve "ammunition". When the actual value of the company is lower than the intrinsic value, buy it to further expand the shareholding in the company.

The continuous opening of China's capital market will attract more global asset managers

21st century: in the past two years, the science and technology innovation board and the growth enterprise market have continuously released policy dividends. A-share market is speeding up the issuance of new shares, ant group such a large number of companies will soon be listed, how to judge the future trend of A-share market?

Wu Yibing: we think this is a good thing. First of all, for example, the registration system reform, the science and technology innovation board and the growth enterprise market are exploring in this area. Further opening up the capital market channel can increase the overall liquidity of the market. Second, the listing of high-quality companies can further attract the accelerated entry of global capital. We can see the popularity of these large IPOs. Institutional investors are in short supply and can not get allocation.

We believe that the further opening of China's capital market and its integration with the world will greatly increase the asset allocation of global asset managers and asset owners in China. Temasek is unique among large global institutional investors, with 29% of our portfolio in China.

However, for many large global asset managers, the asset allocation in China is relatively low, which is about 2% - 3%, while China's GDP accounts for more than 10% of the world, and they have low allocation for China. One of the important reasons is that China's capital market was relatively closed in the past, but in recent years, China has carried out financial reform to the outside world. Now QFII has been fully opened, and there are Shanghai Hong Kong stock connect and Shenzhen Hong Kong stock connect.

In addition, the most important point in terms of listing rules is that the A-share, Hong Kong stock and global listing rules have been further opened up, so that today there will be a large number of companies like ant group to issue shares in both places at the same time. Most of the institutions are two markets that need to be considered. This is an innovation in itself. With more and more excellent targets, there will be more and more investors. We hope to gradually realize "changing cage for bird" in A-share market.

21st century: how to look at the impact of geopolitical tension and other factors on the entry of capital into China?

Wu Yibing: I think it is basically impossible for the government to completely limit the capital. When the geopolitical situation in the two places is tense, the limited cases can be seen, such as the federal government pension fund, which is a multi billion dollar fund. However, for most of the funds, such as enterprise retirement fund and university endowment fund, the capital should be paid back in essence. We firmly believe that as long as the fundamentals are good and the quality of underlying assets is good, enterprises will not worry about selling. The restrictions and intervention of Western governments on capital flows are rare.

21st century: now, many organizations have taken the practice of ESG concept as a very important part after they have achieved a certain volume. Temasek's annual report also has a large section on this issue. How do you think ESG can be put into practice and how to balance the pursuit of return on investment and social benefits?

Wu Yibing: we believe that ESG is the first and last pass for investment. The first barrier means that we will first take it as an exclusive factor in screening enterprises, so that we will not invest in high pollution enterprises; the last one is that we will transform the soft benefits brought by ESG into the hard benefits of real economic returns in the model. The two are unified.

The indicators of ESG are as important as the return on investment. For example, in the aspect of E (environment), we think that in the long run, carbon trading will become the focus, so the carbon cost must be calculated. For long-term investment, the cost of the environment must be regarded as part of the return on investment. Today, many enterprises have good returns in the short term, but once the cost of carbon emissions is added, it is unsustainable. There are great risks. Environmental risk and financial risk can be considered together.