Temasek invested S$377 million in FTX, says belief in Bankman-Fried appears to have been ‘misplaced’

The total cost of its investment in FTX was 0.09 per cent of its net portfolio value.

Belmont Lay | November 17, 2022, 08:52 AM

Follow us on Telegram for the latest updates:

Singapore’s state investor Temasek invested US$275 million (S$377 million) into cryptocurrency firm FTX before it went bankrupt, and will write off its investment “irrespective of the outcome of FTX’s bankruptcy protection filing”.

In a statement issued early Thursday, Nov. 17, Temasek said the total cost of its investment in FTX was 0.09 per cent of its net portfolio value of S$403 billion as of end March 2022.

It invested US$210 million (S$288 million) for a minority stake of about 1 per cent in FTX International, and invested another US$65 million (S$89.1 million) for a minority stake of about 1.5 per cent in FTX US across two funding rounds.

One of many institutional investors

Temasek is one of several institutional backers of the cryptocurrency exchange, with a few others facing losses in similar ranges.

Another backer, Sequoia Capital, a United States venture capital firm, had already reportedly written down the full value of its US$214 million (S$293.5 million) bet on the exchange, Bloomberg reported earlier before Temasek's statement was released.

SoftBank Group, a Japanese multinational conglomerate holding company focusing on investment management, is expecting a loss of around US$100 million (S$137.1 million).

Size of Temasek's investment

A rough guesstimate of the amount Temasek invested in FTX was bandied around as early as Nov. 9, when Binance, the world’s largest cryptocurrency firm, announced that it did not want to acquire FTX.

According to Forbes, which predicted that Temasek's stake was US$205 million (S$281.1 million), the Singapore firm had invested in FTX some time in September 2021, which pushed up the exchange's valuation to US$25 billion (S$34.3 billion).

Temasek clarified in its statement that it had made its investments across two funding rounds from October 2021 to January 2022.

One of the other investors that participated in a funding round with Temasek was the Ontario Teachers’ Pension Plan.

Forbes additionally reported on Nov. 10, 2022 -- after it transpired that FTX was very likely a goner -- that based on their calculations, Temasek's overall FTX stake made it the second-largest outside investor on the capitalisation table, with 7 million shares.

Based on those estimates, the value of Singapore investment firm's stake would have initially peaked in January 2022 to US$320 million (S$438.9 million) when crypto valuations were buoyed by exuberance and optimism for the sector.

Temasek engaged with FTX

A Temasek spokesperson told Reuters earlier on Nov. 9 that it was “aware of the developments”, in the wake of reports of FTX's finances, and was “engaging FTX in our capacity as shareholder", sparking talk of a bailout at that time -- which did not come to pass at all.

Sam Bankman-Fried, 30, the crypto wunderkind who founded FTX, reportedly lost about US$16 billion (S$21.9 billion) of his net worth as a result of FTX's bankruptcy.

His net worth peaked at about US$26 billion (S$35.7 billion).

Questions of due diligence raised

In the wake of FTX's bankruptcy, institutional backers that sunk millions of dollars into the venture have been subjected to public scrutiny, as per reporting by The Straits Times and Tech In Asia.

Questions of the extent of due diligence conducted by heavyweight investors before ploughing millions of dollars into FTX have been raised.

The irony of the situation was also hard to ignore as the FTX meltdown news came in the wake of admonishments by Tharman Shanmugaratnam, chairman of the Monetary Authority of Singapore (MAS), who said early on in April 2021 that cryptocurrency is “certainly not suitable for retail investors".

As per Bloomberg's characterisation of the investor confidence in FTX before its epic implosion in a span of one week in November 2022: "The firm had been considered by some investors as one of the safer bets in the sector thanks to its size and role as an exchange, rather than being just an active manager of digital currency."

Even billionaire Elon Musk thought Bankman-Fried was shady as the shaggy-haired billionaire apparently reached out to try to help in the acquisition of Twitter.

Belief in Sam Bankman-Fried 'appear to have been misplaced': Temasek

"It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced", Temasek said in the same statement.

Similar to all investments, Temasek conducted an extensive due diligence process on FTX, which took approximately eight months from February to October 2021.

During this time, Temasek reviewed FTX’s audited financial statement, which showed it to be profitable.

Separately, Temasek also gathered qualitative feedback on FTX and its management team based on interviews with people familiar with the company, including employees, industry participants, and other investors.

Temasek said while its due diligence processes may mitigate certain risks, "it is not practicable to eliminate all risks".

Temasek also noted that reports have since surfaced that customer assets were mishandled and misused in FTX, adding that this amounts to serious misconduct or fraud at FTX if they were true.

Temasek only took small hit

However, Temasek appears to have walked away from this bad deal relatively unscathed.

Bloomberg also reported that a potential FTX writedown "wouldn’t have a major impact on Temasek’s overall financial standing", as the Singaporean firm managed S$403 billion in assets as of March 31, 2022.

Temasek said as much in its statement.

It said it believes that exchanges form a key part of global financial systems and its investment in FTX was to invest in a leading digital asset exchange with market neutral exposure to crypto markets and no trading or balance sheet risk.

Temasek said there have been misperceptions that its "investment in FTX is an investment into cryptocurrencies".

It clarified that it currently has no direct exposure to cryptocurrencies.

Temasek said in July 2022 it did not invest in crypto directly, but is focusing on building the ecosystem.

Additionally, Temasek US West Coast head Martin Fichtner told Bloomberg that he was confident in the long-term performance of its portfolio companies when asked about the valuations of FTX and Amber Group, another crypto company that Temasek backed in February 2022.

Temasek's investment valued Amber at a US$3 billion (S$4 billion) valuation.

In the wake of the crypto meltdown the past fortnight, Amber's valuation fell from US$10 billion (S$13.9 billion) earlier in 2022 back to US$3 billion (S$4 billion).

Top photos via Temasek and Wikipedia