Perspectives 2019 2020 Public Sector

52 Putting Public Assets to Work While most developed economies have moved to a centralized management of assets, the best results have been achieved when assets have been consolidated inside an independent holding company, at arms-length from short- term political influence — as occurred with Temasek in Singapore (see Box 3) or Solidium in Finland. Box 3: Temasek: The iconic state holding company Temasek was established in 1974 as a separate holding company that was an active investor and shareholder in commercial enterprises and real estate to enable the government to maximize long-term shareholder value. Temasek consolidated all of the commercial assets owned by the government: existing holding companies and state-owned enterprises; previously existing monopolies and utilities that had recently incorporated and still resided within the respective ministries; and some real estate. Temasek was used to separate the regulatory and policymaking functions of government from its role as a shareholder of commercial entities. Since its inception, total shareholder return, measured in Singapore dollars, has averaged 15% per year. Many of Temasek’s holdings are now world-leading companies within their sector such as the telecom operator Singtel, the largest company by market capitalization on the Singapore stock exchange; DBS Bank, the largest in Southeast Asia; and PSA International, one of the largest port operators in the world. Other well-known brands within Temasek include Singapore Airlines and ST Engineering, one of Asia’s largest defense and engineering groups, as well as CapitaLand, one of Asia’s largest real estate companies. Temasek’s political insulation is reinforced by professional boards and a risk management system that puts responsibility and accountability solidly with the board of each holding. The board of Temasek, as well as those of its holdings, consists of independent non-executive directors recruited on merit. Almost half of both management and staff are non-Singaporeans. Transparency and clear objectives are also strengthened by Temasek having a credit rating. Once an asset is inside a holding company and subject to proper accounting standards, a comprehensive business plan will help put it to its most productive use and make clear the opportunity cost of using the asset in a sub-optimal way. Implementing hands-on active asset management will allow an economy to commercialize, optimize, and rationalize its commercial portfolio to the benefit of society. Commercialization of public assets requires that a comprehensive business plan reviews all assets, including real estate, that are unused, used by third parties, or directly used in the provision of public services, but that can either be reallocated or used to generate ancillary income. Optimization requires economies of scale be achieved across the entire portfolio, which includes rationalization — or sales of mature assets to generate funds to reinvest in higher-yielding assets. Monies generated from rationalization activities should be first made available as a source of funding for the achievement of the business plan and then other investments such as infrastructure and housing. Alternatively, the yield could be used for economic development in other areas of benefit to society, such as schools or hospitals.