Our T-GEM, or Temasek Geometric Expected Return Model, enables us to methodically simulate the range of possible returns for our portfolio over 20 years.

The Temasek portfolio is predominantly in equities and the T-GEM modelling approach seeks to reflect the volatile nature of equities. The chart below shows that historically, equity returns were volatile even over long periods.

Economic Scenario-based Approach

Given that equity returns are volatile over time and driven by macroeconomic or geopolitical events, T-GEM uses a scenario-based approach to simulate our 20-year long term expected returns. This approach reflects our long term views of macroeconomic fundamentals over the next 20 years, adjusted for current market valuation. We do not assume an equilibrium return that does not change for any 20-year period.

Projection based on Economic Fundamentals

In projecting economic fundamentals, we have more granular year-to-year assumptions for the first five years, and less granular long term assumptions beyond 10 years. The second five-year period is treated as a transition phase.

T-GEM uses this pathing approach to reflect how the current economic conditions transit towards the long term fundamentals.

Economic Scenario Pathing (Illustrative)

Economic Scenario Pathing (Illustrative)

2016 Potential Scenarios

Potential Scenarios Description
Central Our baseline expectations of growth, reflecting our views of the most likely economic pathway.
China Credit A sharper-than-anticipated slowdown in growth as reforms prove too slow to rebalance the economy and address corporate debt-related vulnerabilities, a lower likelihood alternate scenario.
Global Stagnation Global policy support reaches its limits and is unable to feed into sustainable recovery in key markets, a lower likelihood alternate scenario.

T-GEM 20-year Simulations for Different Portfolio Mix

The charts below show the simulated return for a Global Equity Portfolio, a Global Bond Portfolio and the Temasek Portfolio under our Central Scenario.

The Global Bond Portfolio has the lowest upside potential as compared to the Global Equity and Temasek Portfolios. It also has the least volatility as shown by the narrower year-to-year annual returns distribution curves. The Temasek Portfolio has the highest upside potential (see blue shaded) at the end of 20 years, with the highest year-to-year volatility.

(as at 31 March 2016)

Likelihood of Geometric Returns (Compounded Annualised) at the end of 20-year period by Portfolio Mix

(as at 31 March 2016)

Likelihood of Year-to-Year Annual Returns during 20-year period by Portfolio Mix

Temasek’s 20-year Expected Returns for Various Potential Scenarios

The T-GEM 20-year returns curves for the Temasek Portfolio are shown below for the Central, China Credit and Global Stagnation Scenarios.

Compared to our Central Scenario, our expected returns at the end of 20 years would be lower in a China Credit or Global Stagnation Scenario.

We expect slightly greater volatility in yearly returns for a China Credit case than for our Central Scenario.

(as at 31 March 2016)

Likelihood of Geometric Returns (Compounded Annualised) at the end of 20-year period by Scenario

(as at 31 March 2016)

Likelihood of Year-to-Year Annual Returns during 20-year period by Scenario

Investing for Generations

Investing for Generations

Temasek also plays an enabler role across all stages of enterprise, from startups to later stage companies, seeking out those with disruptive business models that are potential game changers and transforming existing businesses.

Managing Risk

Managing Risk

Temasek's risk management framework covers strategic, performance and operational risks, and we track and manage risks proactively.

Institution

Institution

Temasek is a forward looking institution. We act with integrity and are committed to the pursuit of excellence.