Temasek Holdings Pte Ltd plans to ramp up investment in Europe, undeterred by setbacks in a region that its new local chief expects will provide significant opportunities for the Singapore state investor.

The firm seeks to make net investments of as much as S$25 billion (US$18 billion or RM87.72 billion) across Europe over the next five years, said Nagi Hamiyeh, head of Europe, the Middle East and Africa. He is looking for partnerships with companies including those tied to some of the world’s wealthiest business families.

“Europe is in a better place than it was a year or two ago,” Hamiyeh said in an interview before the opening of Temasek’s Paris office. “I volunteered to come to Europe because I see a lot of potential for us to play.”

The targeted investment increase - which could vary depending on opportunities and external events - would represent a substantial boost in European assets held by Temasek, which had €32 billion in exposure to the region as of March 2023, he said.

Hamiyeh’s commitments come at a challenging time for Temasek’s European holdings. Its investments in Standard Chartered plc and Dutch payments platform Adyen NV are down from their peaks, while shares of Bayer AG plunged 51% in the year ended March as the health-care and agriculture firm faces lawsuits over its Monsanto weedkiller brand.

Hamiyeh said Temasek won’t be able to single-handedly fix the troubles at some of its European investments. Instead, it has held constructive dialogue and provided ideas alongside other investors.

“Are we going to become an activist investor? Absolutely not - it’s not in our DNA,” he said. “Our style, especially outside of Singapore, is to do a lot behind the scenes.”

Temasek managed S$382 billion as of March 2023. The broader EMEA region represented 12% of its total assets.

Having climbed the ranks of the state-owned investor to become one of its most senior executives, Hamiyeh previously headed the portfolio development group as a troubleshooter who helped promote the consolidation of several of Temasek’s domestic subsidiaries. He now plans to be based in Paris after living in Singapore for 28 years, and will also lead the firm’s energy-related investments.

The shift toward Europe comes at a critical time for Temasek, which celebrates its 50th birthday this year. Its profits form a major source of revenue for the government’s national budget and an election is set to be held as early as this year.

Assets in China, which have long been a source of growth for Temasek and made up 22% of its AUM in March 2023, have suffered from falling consumption and valuations. And while 21% of its portfolio is in the Americas, where stock rallies have helped drive up many sovereign funds, more than half of its total holdings are now in unlisted assets.

For Hamiyeh, ramping up deals in Europe is necessary to make Temasek’s returns more resilient in an era of geopolitical tension, high interest rates and inflation. The region combines large conglomerates with strong cash flows and competitive advantages with large domestic consumer bases to provide a hedge against turbulence elsewhere.

“The sweet spot for deals would be several hundred million euros because this way we do fewer deals and we engage in much more active portfolio management,” he said, adding that the Paris office will have around 12 staff initially. “Our portfolio in terms of new investments will absolutely focus on companies with very strong cash flows and pricing power.”

Family ties

Temasek will try to combine its Asian roots and long-term investments with global European companies and family businesses as they expand to broader markets. Hamiyeh named Exor NV chief executive officer John Elkann, LVMH founder Bernard Arnault, Francois Pinault of Gucci owner Kering SA, and Moncler Spa CEO Remo Ruffini as people who the firm has very good relationships with.

“We value coming in with families because our value proposition is such that they may prefer to work with us than a private equity fund that has maturity problems where in five years come hell or high water they want to be out,” Hamiyeh said. “We are much more flexible and can come in as direct equity or on the capital stack.”

He said Temasek would be interested in investing in new energy, renewables and decarbonisation, as well as consumer health, luxury, technology, robotics and “the future of work.”

And while Temasek is at the early stages of “rediscovering” whether it can play a role in the boom of Middle Eastern markets, the EMEA chief said it would be a slow deployment and much smaller compared with opportunities in Europe. Instead, he said its portfolio companies would be the most likely to venture more deeply into the region.

  - Bloomberg