Temasek Responds to FTX’s Collapse & Explains Why They Invested in It

Crypto’s crash has made waves, and it has finally hit our shores.

Temasek Writes Down Investment in FTX

State investor Temasek has issued a statement on Thursday (17 November) that it would write down their US$275 million (~S$377 million) investment in FTX, “irrespective of the outcome of FTX’s bankruptcy protection filing.” 

This means that they would record a hit in investment in light of the FTX crash.

Simply put, they’re not hoping that they’ll get back any money from this investment.

Temasek said that the composition of FTX in their portfolio was 0.09% of their total S$403 billion as of 31 March 2022. 

Their investment was split into two portions across two rounds of funding from October 2021 to January 2022. 

The first was a US$210 million (~S$289 million) for a minority stake of 1% FTX international. The second was a US$65 million (~S$88 million) for a minority stake of 1.5% in FTX US, which is the American subsidiary. 

Due to potential public misunderstanding, they mentioned that the investments were in FTX, the trading market, and not into cryptocurrencies. In clarification, they said that they “currently have no direct exposure in cryptocurrencies.”

Chim?

Basically, they’re saying that they didn’t invest in cryptocurrencies like Bitcoin, but in the platform that it is traded on.

FTX Crash

FTX is a cryptocurrency exchange system which promotes transaction of digital currencies. 

In this market, users are able to link their crypto wallets and engage into digital transactions. They can place trades, enter into contracts, as well as buy/sell NFTs. 

Started by Sam Bankman-Fried and Gary Wang in 2019, this platform originally saw hypergrowth. However, as it increased in popularity, it did not have enough to supply customer demands. 

Many were sceptical about the solvency of the company (the ability to meet long-term debts and financial obligations)  and worried that they stood to lose all their money. As such, they withdrew from the market.

This led to the collapse of the FTX empire, with its share price pummelling.  

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Looking Back

In the statement, Temasek detailed its framework and rationale behind investing.

Its investment discipline is “centred around intrinsic value and risk-return framework”, which “guides (their) due diligence for new investments.”

Early stage investments constitute around 6% of their portfolio, and they have stated that they recognise the risks of such. Before investing in early-stage companies, they “take a very measured approach” to insure the investment. 

In more detail, they apply an illiquidity risk premium on the cost of capital and add on a venture premium for the early stage the companies are in. 

Before investing in FTX, they have “conducted an extensive due diligence process” and showed it to be profitable.

Unfortunately, they have announced that their “belief in the actions, judgement and leadership of Sam Bankman-Fried … have been misplaced”, and as a result lead to the investment’s failure. 

Looking Forward

Temasek has announced that they “treat any investment losses seriously and there will be learnings for (them) from this.” 

Despite the loss, they continue to recognise the potential of blockchain technology.

In the future, they will “continue to remain prudent and exercise caution.”

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Featured Image: Temasek / The Crypto Times