This paper examines shifts in Temasek Holding’s (Singapore’s sovereign wealth fund) investment and risk management strategies since the 2008–09 global financial crisis (GFC), as well as the risks it has faced in recent years. Our findings reveal that the shift in Temasek’s investment strategy has been made in response to a combination of the GFC, rising political and sovereign credit risks, as well as the desire to move away from playing a custodial role to Singapore’s government-linked companies (GLCs). We note that, apart from capitalising on lower global prices to expand its portfolio as well as minimising its exposure to the financial services industry immediately after the GFC, other changes have been part of a continued trajectory of a broader shift in investment strategy that commenced in the early 2000s, with a redirection of the geographical distribution of its portfolio from Singapore and OECD countries to Asia (excluding Japan). Furthermore, as a sovereign wealth fund, Temasek has had to deal with increasing political and sovereign credit risks in recent years. To mitigate these political risks, Temasek has pledged that it will cease seeking controlling interests in foreign companies, will increase the use of local partners and will consider the ‘emotional sentiments’ that its acquisitions may arouse in host countries. The elevated sovereign credit risks in the Eurozone and the United States have rendered Temasek more cautious in investing in those regions and, where it has invested, it has focused on the energy and natural resource sectors, which are relatively more insulated from sovereign credit risks.

This paper examines whether the State Administration of Foreign Exchange (SAFE) and its subsidiary SAFE Investment Company (SIC), the sole managers of China’s gargantuan official foreign exchange reserves (OFER) until 2007, have shifted their investment behaviour since the inception of China Investment Corporation (CIC). We find that external conditions such as overexposure to US dollar-denominated assets and declining value of the greenback, as well as internal conditions like the rise of CIC as a rival to manage China’s OFER, have prompted SAFE-SIC to depart somewhat from their pre-2007 conservative style of investing most of China’s OFER in low-yielding foreign government bonds, especially US Treasury bills. Since 2008, SAFE-SIC, in a seeming competition with CIC, have started to pursue higher-risk, higher-return investments. However, we observe that this bolder strategy of SAFE-SIC might not be sustainable for long, because: (a) it duplicates CIC’s explicit mission already set by the State Council to invest in higher-risk, higher-return assets; (b) it runs against SAFE’s core mission to preserve, rather than grow, China’s OFER; and (c) SAFE is tied down by other core responsibilities such as the regulation of China’s foreign exchange administration system, the stewardship towards full capital-account convertibility, and the gradual internationalisation of the renminbi (RMB). As such, engaging in higher-risk, higher-return investments would most likely remain a secondary priority within SAFE’s overall mandate.