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By Una Galani

HONG KONG, Sept 5 (Reuters Breakingviews) - Temasek's redesign is a slow burn, but is smart and well timed. In a roughly 40-40-20 split of its S$434 billion ($338 billion) portfolio, the state investor will put its core strategic holdings in Singapore-based companies - including giants DBS DBSM.SI and Singapore Airlines SIAL.SI - its global investments, and its funds, partnerships and asset management companies into separate divisions. The reshuffle is a step towards answering calls for the city-state's sovereign wealth funds to be more transparent. It could yield other gains too.

It's a good juncture for Dilhan Pillay, CEO since 2021, to act. Temasek's 10-year total return to its shareholder fell one percentage point to 5% in the year to the end of March. Performance is trending down on a 20-year horizon, too. Rising populism and protectionism globally present an adverse backdrop for deploying capital and creating value.

The shake-up seeks to improve things within Pillay's control. By appointing leaders to take direct charge of Temasek's Singapore holdings and its global investments, he will empower them and be able to compensate them more appropriately. That's key because the operations are so diverse: Temasek is generally a minority investor in global investments, while controlling those on its home turf, for example.

If the rejig is taken to its logical conclusion, the three segments would eventually each disclose their individual returns that, combined, make up the headline figures that are currently the ones Temasek reports; Pillay told journalists that the investment house expects to publish more information over time that is relevant to its performance but stopped short of committing to this higher level of disclosure.

Such a step could help it highlight how well its holdings outside of Singapore are performing. Temasek started life in 1974 with an endowment of commercial businesses the government had created. The domestic banks, airlines, ports and other companies it holds are highly strategic to Singapore's status as a financial hub and outward-facing economy and are not for sale. While they contribute to the resilience of Temasek's portfolio, they probably drag down its long-term performance - after all, MSCI Singapore .MISG00000PSG has delivered just two thirds the returns of MSCI World .MIWO00000PUS for the past 10 years on an annualised basis.

This may explain why Pillay also announced that Temasek will give up its long-held light-touch approach to managing its Singapore investments. From now on, it will appoint board members and is encouraging companies to use acquisitions to grow. This has been happening already. Offshore marine company Seatrium SEAT.SI was born in 2023 after Temasek nudged two portfolio companies to merge. A year earlier Temasek backed a rights issue to help aviation services group SATS SATS.SI acquire Worldwide Flight Services, the largest air cargo logistics provider on the planet.

If Temasek follows through on all these fronts, it will be something to cheer.

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CONTEXT NEWS

Temasek on August 28 announced an internal reorganisation. The Singaporean state investor said it will establish three wholly owned entities - Temasek Global Investments, Temasek Singapore, and Temasek Partnership Solutions - to manage its three main investment segments.

These accounted for 36%, 41% and 23% of Temasek's S$434 billion portfolio value as of March. The move will take effect on April 1, 2026. Temasek said it has to adapt its organisational structure to support growth and returns and to perform with greater accountability.

Temasek's portfolio value rose 12% in the year to the end of March, led by gains in listed assets, though its 10-year total shareholder return fell one percentage point to 5%.

In explaining the reorganisation, Dilhan Pillay gave his first media interview since becoming group CEO almost four years ago.

(Editing by Antony Currie; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on GALANI/ una.galani@thomsonreuters.com))