While I have written extensively about the return discrepancies at Temasek let us consider the possibility that I am wrong. In fact, let us go so far as to assume that everything Temasek has claimed about its returns is completely and entirely accurate in every way. In this column from this point forward, we shall assume that Temasek has earned an average rate of return since 1974 of 17%.

According to Temasek at the end of the fiscal year in March 2012 (Temasek has not yet released their March 31, 2013 annual report), they reported $198 billion SGD under management. If we assume that Temasek has exactly $198 billion SGD and not one penny more or less and that they earned exactly 17% and 17.01% or 16.99% this implies they began with $508 million SGD (increasing the range to 17.44% and 16.5% does not fundamentally alter this analysis).

This actually reconciles rather closely with other available information rather closely in two ways. First, Temasek has said in the past that it began operation in 1974 with $374 million (the webpage stating this has been taken down recently). Second, Singapore public operational surpluses in the years prior to 1974 come very close to equaling this amount of money. The accumulated operational surplus from 1969 to 1973 was $551 million SGD. In other words, there are multiple data points that come close to reconciling against what could possibly be true with regards to Temasek earning an average of 17% since inception.

So let us assume for the rest of this analysis that Temasek was endowed with between $374-500 million SGD and that they averaged 17% annually since inception giving them their current $198 billion SGD under management. Doing this however only creates a new and enormous problem.

From 1974 to 2012, Singapore enjoyed total operational public surpluses from $307 billion SGD and incurred new borrowing of $381 billion SGD. This means that between 1974 and 2012, Singapore had a total of $688 billion SGD in free cash flow for investment purposes.

Here is where we encounter the problem if we assume that Temasek earned 17% since 1974. In its public balance sheet ending March 31, 2012, the Singapore government lists total assets of $765 billion SGD. If we subtract out the $198 billion SGD managed by Temasek we are left with $567 billion SGD. If Temasek earned 17% annually from 1974 to 2012 that means that the government was receiving $688 billion SGD to somehow end up with $567 billion. In other words, the non-Temasek public Singapore investors managed to lose $121 billion SGD or about .5% annually.

Let us take this analysis one step further and assume that the public surpluses and borrowing earned a modest 5% after expenses and costs (the 5% number is for illustrative purposes only but less than 7% claimed by GIC). If the yearly surpluses and borrowing were invested every year and earned 5% annually, this would yield a total of $1.3 * trillion* SGD. The difference between the actual Singaporean non-Temasek assets and what Singapore should have if surpluses and borrowing since 1974 earned a conservative 5% is a staggering $750 billion SGD. In other words, Singapore is about $750 billion short of what it should have if Temasek earned 17% and the remain money earned 5%!

Though the evidence fails to support the claim that Temasek earned 17% annually since its inception in 1974, even if this is true it only creates bigger problems. If Temasek did legitimately earn 17% annualized what happened to the rest of this so called investment juggernaut?

* Note:*Here is my file calculating the numbers from above. If you wish to dispute the numbers please demonstrate the error of in my analysis. I will not however be intimidated into silence.