To The Moon

Temasek Holdings

Investment firm Temasek Holdings has been affected by the implosion of popular cryptocurrency trading firm FTX.

FTX was one of the world’s largest cryptocurrency exchanges before it sought bankruptcy protection last week.

Its CEO and founder, Sam-Bankman Fried, has also resigned.

Temasek has released a statement confirming that it will write down its entire US$275 million investment in FTX, regardless of the outcome of the latter’s bankruptcy filing.

The US$275 million investment was made in two separate tranches between October 2021 to January 2022 for a 2.5% stake in the cryptocurrency outfit.

It also clarified that it did not invest directly in cryptocurrencies.

The due diligence process for FTX was extensive and lasted approximately eight months, during which Temasek reviewed the cryptocurrency exchange’s audited financial statements and spoke to numerous people familiar with FTX and its operations.

Its US$275 million investment made up 0.09% of its total portfolio value of US$403 billion as of 31 March 2022.

Temasek’s rationale for investing in FTX is based on its belief that cryptocurrency exchanges form a key part of the global financial system.

Hence, its thesis involved gaining exposure to the crypto markets indirectly through a fee-based model with no trading or balance sheet risk (as no direct investment in any cryptocurrency was made).

Early-stage investments in such nascent companies make up just 6% of its entire portfolio.

Thus far, such investments have, on average, generated a mid-teens rate of returns even though such investments are inherently riskier.

Warren Buffett and TSMC (NYSE: TSM)

It’s been a tepid period for the semiconductor industry as chip makers have downgraded their revenue forecasts in light of slowing demand.

The COVID-fuelled boom had initially led to a chronic undersupply situation as many chip makers ramped up production aggressively to tackle the shortage.

The pendulum has now swung to the other extreme.

Chip makers such as Micron Technology (NASDAQ: MU) are scaling back on their capital spending plans for 2023 while clearing excess inventory.

Intel (NASDAQ: INTC) has also reported waning demand for personal computers as it conducts layoffs to reduce staff costs.

Amid the gloom, one of the world’s best investors, Warren Buffett, has taken an opposing view.The Oracle of Omaha, as he is sometimes called, has scooped up US$5 billion worth of Taiwan Semiconductor Manufacturing Company (NYSE: TSM), or TSMC for his conglomerate Berkshire Hathaway (NYSE: BRK.B).

Berkshire disclosed that it acquired around 60 million American Depository Receipts (ADRs) of TSMC for the quarter ended 30 September 2022.

TSMC is the world’s leading chip maker and counts technology giants such as Apple (NASDAQ: AAPL) as its clients.

It also manufactures semiconductors for clients such as Nvidia (NASDAQ: NVDA) and Qualcomm (NASDAQ: QCOM).

The nonagenarian investor has a history of shying away from the technology sector in his earlier years but has altered his stance recently by allocating an increasing proportion of Berkshire’s investments to the technology sector.

Whether Buffett’s bet on TSMC will work out or not remains to seen, but investors should remember that his investments are typically long-term and that he is giving a vote of confidence to semiconductors.