Singapore-based investment company Temasek Holdings has made headlines after announcing significant cuts in compensation for the executives responsible for a $275 million investment in FTX, a cryptocurrency exchange. The move comes following a recent downturn in the value of the investment, raising questions about the company’s risk management strategies and executive accountability.
Despite finding “no misconduct” in Temasek’s internal review, the staff involved in the FTX investment will experience a reduction in their compensation package.
Temasek cuts compensation: Consequence of FTX’s Collapse
In response to its investment in the now-defunct cryptocurrency exchange FTX, Singaporean investment firm Temasek Holdings cuts the compensation of the executives responsible.
Previously, Temasek held the position of the second-largest external investor in FTX, owning 7 million shares, as reported by Forbes. However, the collapse of the exchange prompted scrutiny of Temasek’s investment strategy and necessitated accountability for its involvement.
Following the collapse of the FTX exchange in November 2022, Temasek initiated an internal review of the $275 million investment loss. In a statement dated May 29, Temasek announced the conclusion of this review.
Accountability & compensation adjustments: Temasek’s Response to Investment Review
Although the internal review determined that there was “no misconduct” within Temasek, the investment team and senior management took “collective accountability” and experienced reduced compensation. Acknowledging the inherent risks associated with any investment, Temasek emphasized the importance of investing in new innovations.
“We believe that we have to invest in new sectors and emerging technologies to understand how these areas may impact the business and financial models of our existing portfolio, and whether they would be drivers of future value in an ever-changing world.”
Written off as a loss, the $275 million FTX investment constituted a mere 0.09% of Temasek’s portfolio value, which exceeded $293 billion at the time of the exchange’s collapse. Despite the loss, Temasek reiterated its commitment to having conducted an extensive due diligence process prior to the investment in FTX.
Chairman’s Statement: Temasek Confronts Alleged Fraud and Its Impact
According to a statement from Bloomberg on May 29, Temasek’s chairman, Lim Boon Heng, stated that there had been deliberate fraudulent conduct concealed from investors, including Temasek. This revelation implies that the firm has been significantly affected by the situation.
“We are disappointed with the outcome of our investment, and the negative impact on our reputation.”
In November 2022, shortly after the collapse of FTX, Singapore’s Deputy Prime Minister Lawrence Wong expressed similar sentiments during a parliamentary meeting. During the session, Wong emphasized that the events surrounding FTX had not only resulted in financial losses for Temasek but also inflicted reputational damage on the company.
Thorough due diligence: Temasek’s Extensive Review of FTX and Engagements
During the due diligence process, Temasek disclosed that it thoroughly examined various aspects. This involved reviewing FTX’s financial statements, evaluating regulatory risks associated with financial service providers in the cryptocurrency market, and seeking legal guidance over a span of nine months, from February to October 2021.
Furthermore, Temasek indicated that it engaged in conversations with individuals possessing firsthand knowledge of FTX, including employees, other investors, and participants within the industry.
Temasek recently refuted rumors suggesting its $10 million investment in Array, the developer of an algorithmic currency system utilizing smart contracts and artificial intelligence. In a concise statement on May 2, the company directly addressed the circulating news articles and tweets regarding the alleged investment, categorically dismissing them by asserting that the information was incorrect.
The decision of Temasek to cut compensation for the executives responsible for the $275 million FTX investment demonstrates its commitment to accountability and responsible governance. Despite finding no misconduct internally, the company took collective accountability and implemented compensation adjustments.
Temasek’s focus on thorough due diligence and engagement with industry participants highlights its dedication to informed decision-making. As the cryptocurrency market continues to evolve, Temasek’s experience serves as a reminder of the importance of risk management and continuous evaluation. By addressing the challenges posed by the FTX investment, Temasek aims to maintain trust, safeguard its reputation, and deliver long-term value to its stakeholders.
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