Temasek to ramp up impact efforts with direct investing

The influential Singaporean investor has built deep relationships with two impact GPs and made fund commitments to others; next stop is direct investment.

Benoit Valentin, Temasek

Temasek, the S$381 billion ($283 billion; €241 billion) Singaporean investor, has plans to add direct investment to its impact investment mix, says Benoit Valentin, head of both impact investing and private equity fund investment.

The influential institutional investor has already made a concerted effort to channel capital into impact investments through GP relationships. Most notable among these was the deal it struck with prominent “profit with purpose” investor LeapFrog Investments at the start of 2021, whereby Temasek committed $500 million to both acquire a stake in the firm and be a cornerstone LP in its upcoming funds. Before the Leapfrog deal, Temasek had already backed the launch of ABC Impact, a Singapore-based impact firm, in 2019.

On stage at the Impact Investor Global Summit in May this year, Valentin described the investor’s “three-pronged” approach to impact, the first prong being these tight GP relationships. “We have two core strategic relationships, with ABC Impact and LeapFrog, where we own stakes and are one of the largest LPs,” he told delegates.

“These are the two aircraft carriers. Then we have the speedboats around them,” he said.

The “speedboats” are the more conventional fund commitments, the second prong of the programme, while the third element will be a direct investing effort.

“For the last 48 years [Temasek] has been primarily a direct investor… so eventually we will do more direct investing in impact,” said Valentin, noting that some historic investments could well have qualified as being impact, such as investments in alternative protein providers several years ago.

Toby Mitchenall, New Private Markets (left), and Benoit Valentin, Temasek
Toby Mitchenall, New Private Markets (left), and Benoit Valentin, Temasek

“We haven’t yet started direct investing in this impact investing unit focusing on social SDGs in emerging markets, but we will do it,” he said.

Temasek has chosen to direct its impact investment allocation, which sits separately from its climate-focused investments, towards “social SDGs” (think healthcare, financial inclusion and education) in emerging markets, said Valentin, who declines to comment on the size of the impact bucket.

“This is where we saw the biggest gaps between funding and needs,” said Valentin, who reeled off a handful of data points – a $400 billion yearly gap to close in terms of healthcare, 250 million small- and medium-sized businesses that lack financing. “There is a massive need and massive gaps,” he said, “You see the need and the opportunity.”

“The combination of favourable demographics, criticality of services, and technology: we think that is an interesting combination,” said Valentin, pointing to the long-term trends identified in an influential McKinsey report from 2012.

Valentin’s impact unit operates separately from Temasek’s various climate-focused initiatives, which include a joint venture with BlackRock to invest in climate tech, an early LP commitment to Brookfield’s Global Transition Fund and more recently the creation of a multi-billion dollar decarbonisation platform among other things. It does, however, think “very hard about how we can weave in climate themes to emerging markets… again always with the view of serving the underserved customers,” Valentin added.

When considering backing a GP, Temasek considers three criteria, said Valentin: “Obviously we want to be convinced that there is a fit between their own impact strategy and ours. We want to make sure they live the impact thesis and embed it into their investment practices.” The third consideration is whether the GP-LP relationship can be a “a win-win”: “So we can learn from them, and support their initiatives.”