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How did Temasek Holdings made its investment in FTX?

Many people in Singapore were disappointed that Temasek Holdings invested and wrote down US$275 million in its investment in FTX.

There were surprised and shocked to learn, after the collapse, that FTX was run by a team of young, inexperienced people, and there were no proper governance, accounting and risk management practices in place.

How did TH carry out its due diligence, and invested a large sum into a a badly run business?

This is my understanding of how the venture capital industry works.

The people in this industry that invest large funds into startup companies, such as FTX, form a closely knit community. They know each other personally through attendance at international conferences, business introductions and joint investments in ventures.

Often, a leading VC capitalist gets to know a startup entrepreneur and decides to fund the startup business. This VC capitalist introduces the startup to the their close contacts in the industry, and probably describes it as “an opportunity not to be missed”.

The other VC investors line up to get a share of this opportunity. They would probably not carry out their own due diligence, as it would take time, and the opportunity might go to other investors who are willing to decide promptly.

I have spent a few decades of my working career in the insurance industry. This is also how the big insurers spread their risk through reinsurance. They follow the leader and take a share of the big risks, often based on trust that the leader has carried out the proper due diligence.

The problem with this approach is that the leading VC capitalist that brings to “opportunity” to other investors might have a vested interest, e.g. they are paid a finder’s fee based on the investments made by new investors.

I do not know for certain if this is the case for FTX, but it might be. The finder fees can be quite hefty, and the payment would probably be considered legal.

Nevertheless, I consider it to be a bad practice for an institution to make a big investment based on this practice of following the leader blindly.

Many large hedge and institutional funds are involved in FTX. Temasek Holdings was not the leading investor and not the largest investor.

I expect that the decision to invest in FTX was not made by the portfolio manager on his own. It probably had to be approved by an investment committee. I would expect that the investment committee would include members of the non-executive board.

I found that Temasek Holdings have a Senior Divestment and Investment Committee (SDIC) that comprised solely of the full time management. It does not appear to include the non-executive board directors. The annual report did not disclose the names and positions of members of SDIC.

I think that this is a bad practice that needs to be corrected. Some non-executive members of the board should sit in the SDIC. Their role is to check that the full time managers are doing their work diligently.

My above view is based on my the information that I was able to obtain, and that information may be incomplete or inaccurate.

The government has announced that they will carry out an investigation into this matter. I will wait to read the findings of this investigation. I hope that it will be released in full and quite promptly.

 

Tan Kin Lian

 

 

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READER COMMENTS BELOW

16 Responses to “How did Temasek Holdings made its investment in FTX?”

  • Kelong:

    As long as finder collected the finding ftx investment fee, to hell with the outcome of the investment!

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  • only stupid people vote pap:

    How did TH carry out its due diligence, and invested a large sum into a a badly run business?

    Those who have wasted years in pap NSF NSR will know what we are talking about.

    When in a WAR, who is the better buddy? The useless pap paper generals or the unschooled sergeant or unschooled staff sergeant?

    Those sinkies will probably, all of them, say, the best buddy will be the useless pap paper generals, since they have pips on their shoulders and all of them have paper qualifications from the best Us outside pap island.

    This is why we always say sinkies are very stupid.

    In a WAR, it is not about talking pap cock and pap hen. It is about actually knowing the thing and use the thing to win the WAR or use the thing to survive the WAR.

    Sinkies who choose useless pap paper generals shall all die in the WAR because sinkies have chosen the talk cock only ones who cannot shoot straight or fire a rifle or even take cover properly.

    In other words, sinkies who invested in FTX citing Temasick also did so are the sinkies who deserve their plight, no different from sinkies who chose pap useless paper generals in a WAR.

    What to do then?

    In pap island, the best method is always to watch what the pap folks do and to do exactly the opposite.

    If pap buys FTX, avoid FTX. If pap has useless paper general kim jong umbrage, avoid.

    Rather, watch what PSP WP folks do. These are the experience folks who know the ground and work hard on the ground. If these folks focus on West Coast, sure as sunrise West Coast will go to them. If these folks focus on East Coast, sure as pap lies East Coast will go to them.

    pap folks all tell lies. When they lose S$275m just like that, they say it is peanuts money. But when asked to give poor sinkies S$2.75, these pap folks say it is unsustainable.

    Vote pap die. Believe pap die faster. Continue to have pap as government die fastestest.

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  • Malboy:

    “Many large hedge and institutional funds are involved in FTX. Temasek Holdings was not the leading investor and not the largest investor.”

    Are you kidding me ?

    Take a look at chart and decide for yourself at
    https://economictimes.indiatimes.com/tech/newsletters/ettech-unwrapped/how-did-ftx-fleece-the-worlds-shrewdest-investors/articleshow/95611498.cms?from=mdr

    Temasek is not the largest does not mean anything because the largest investor Paradigm is $278 millions, so this $3 millions difference is not big difference, which mean that Temasek is still one of the largest investors in FTX.


    Paradigm: The crypto/web3-focussed investment fund pumped $278 million into FTX, according to a letter it sent to its limited partners last week, making it the single largest investor in the company. On Tuesday, cofounder Matt Huang said the firm was “shocked” by the recent revelations and deeply regretted its decision to invest in FTX.

    Temasek: On Thursday, Singapore’s state-owned investor said it has written down its entire $275 million investment in FTX, “irrespective of the outcome of FTX’s bankruptcy protection filing”.”

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  • Dr Fire:

    I don’t call it

    Investigate

    Divestigate more appropriate

    Call Me Eliterate

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  • All "yes men" Temesek?:

    I watch a Taiwanese news variety show about FTX. It said Temesek do some work or review about FTX investment for about 8 months before investing. I was thinking: how funny is that? Normal person will not invest in FTX and they did a 8 month review and decide to invest. It is must be like follow the procedure and all “yes men” blindly rubber stamp everything according the wish of upper management. Everything is like a show or “wayang”. Very questionable management.

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  • xoxo:

    The G will carry out investigation.
    Sure but the G also indirectly in-charge?
    How will the OPERATOR BE AN INDEPENDENT REGULATOR?
    Maybe,ask SDP/PSP/WP TO FORM COMMITTEE OF INQUIRY.
    Just like Singapore Pools.
    G is operator/regulator.
    FUNCTIONS OF OPERATOR MUST BE SEGREGATED *CLEARLY* FROM REGULATOR.

    Many things require reform here.

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  • MarBowling:

    All “yes men” Temesek?:
    December 5, 2022 at 2:25 pm (Quote)
    I watch a Taiwanese news variety show about FTX. It said Temesek do some work or review about FTX investment for about 8 months before investing. I was thinking: how funny is that? Normal person will not invest in FTX and they did a 8 month review and decide to invest. It is must be like follow the procedure and all “yes men” blindly rubber stamp everything according the wish of upper management. Everything is like a show or “wayang”. Very questionable management.

    Response: Very clear as the Bluest Sky of SinKapore, those Yes Men Jokers at Tombmasek Holdings(previously under the ARMPIT but NOW under the THUMB of Holee Jinx)must be doing “some work or review about FTX investment for about 8 LOONG Months” before DIVING IN DEEP DEEP with ALL EYES CLOSED! Wonder ANY of those Yes Men Jokers involved are STILL walking around like Crabs?

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  • Blame the CEO FTX:

    I can sense what the investigation would sound like. BLAME THE CEO FTX!

    I can sense what the investigation would sound like. BLAME THE CEO FTX!

    I can sense what the investigation would sound like. BLAME THE CEO FTX!

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  • SINGAROAR:

    The board or persons who approved the FTX investment should be identified and sacked.TH should only invest in long term returns and not in quick start-ups. FTX is about two years old and TH claims to have done due diligence for eight months, how to assess a company that has not filed tax returns?So, it seems like some party in TH decided to part with our SWF without actually looking at the liabilities. This was done with intent and is not a mistake.So LW should work towards arresting the individual or individuals.

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  • Real thinker:

    Good one. There must be an independent audit led by disinterested MPs. Those responsible must be sued to recover loss. Meanwhile there must be a mal-li-bu and mal-li-peh stop on their wealth.

    SINGAROAR:
    The board or persons who approved the FTX investment should be identified and sacked.TH should only invest in long term returns and not in quick start-ups. FTX is about two years old and TH claims to have done due diligence for eight months, how to assess a company that has not filed tax returns?So, it seems like some party in TH decided to part with our SWF without actually looking at the liabilities. This was done with intent and is not a mistake.So LW should work towards arresting the individual or individuals.

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  • ah lian:

    @xoxo
    Agreed .
    No PAP MPs or members will investigate unbiasly.
    To show sincerity,appoint opposition MPs or members.

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  • Soccerbetting2:

    Watch this FTX collapse affecting Singaporeans -”https://vt.tiktok.com/ZS88gpmUq/”

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  • Soccerbetting2:

    Watch this Tik Tok link on crypto-”https://vt.tiktok.com/ZSRoraoVY/”

    Cofounders of crypto withdraw huge sum of money before they go bankrupt which is why cryptois another scam as co-founders of crypto always have access to crypto funds and can run off with the crypto currency before it go bankrupt.It is only ordinary people who invested in crypto sure dead with $0 return !

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  • melatine:

    “SINGAROAR:
    The board or persons who approved the FTX investment should be identified and sacked.TH should only invest in long term returns and not in quick start-ups. FTX is about two years old and TH claims to have done due diligence for eight months, how to assess a company that has not filed tax returns?So, it seems like some party in TH decided to part with our SWF without actually looking at the liabilities. This was done with intent and is not a mistake.So LW should work towards arresting the individual or individuals.”

    Oh,,, we forget that PAP is also contrarian, so instead of arresting their own cronies in Temasek Holding to do the right thing, they may just arrest the opposition party members for raising the FTX issue by rushing the court to persecute them under Raeesah Khan’s case.

    Surely we know how PAP works. It is very predictable, very soon, you see PAP start to revive the case of Raeesah Khan’s case again.

    PAP always time the event, so there is never such thing as coincidence, and that is why they have the executive, the police, the court, military, everything under their control.

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  • Soccerbetting2:

    Watch this Tik Tok on Temasek -”https://vt.tiktok.com/ZS88p3HqM/” and FTX .

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  • Sinkies funded Biden:

    Sinkies money -> TH -> FTX -> Biden.

    White House won’t comment if Biden plans to return $5.2M in campaign funds from disgraced FTX founder Sam Bankman-Fried charged with swindling investors out of $1.8 billion

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