The collapse of the FTX crypto exchange has undeniably been a costly affair for Singapore’s sovereign wealth fund, Temasek Holdings. In a recent statement, Temasek acknowledged “fraudulent conduct” intentionally concealed from investors in the failed $275 million investment. Despite no misconduct committed by the investment team, senior management and the investment team are taking “collective accountability,” according to Temasek Chairman Lim Boon Heng, and experiencing reduced compensation as a result.
Following the dramatic collapse of FTX in November, Temasek wrote off the entirety of its $210 million and $65 million investments, which accounted for 1% of FTX International and 1.5% of FTX.US, respectively. Consequently, these investments formed a minuscule 0.09% of the firm’s net portfolio value from last year. At the time of the investment decision, Temasek seemed to have been thorough in its due diligence, spending eight months reviewing audited financial statements and analyzing both regulatory risks and cyber security threats.
In response to the FTX debacle, Temasek plans to refine its investment appraisal procedure, particularly for fast-growing firms. The experience has also made the fund cautious regarding future investments in the blockchain space, with no plans to invest in cryptocurrencies. Of note, FTX was the only investment Temasek had in a crypto exchange.
The failed investment highlights regulatory discrepancies concerning the treatment of crypto exchanges. While FTX was accessible to users based in Singapore, its primary competitor, Binance, was blocked. The Monetary Authority of Singapore (MAS) placed Binance on the Investor Alert List in September 2021 but did not do the same for FTX. MAS explained that Binance had directly solicited Singaporean customers and offered trades in the Singapore dollar, unlike FTX.
Despite the unfortunate outcome with FTX, the cryptocurrency and blockchain sectors continue to offer exciting opportunities. Regulations must evolve to keep pace with the rapidly developing market to prevent future scandals and costly collapses. As the experience of Temasek shows, even the most thorough due diligence can miss concealed fraudulent conduct. Adapting investment appraisal procedures and refining regulatory oversight can help minimize risks for future investors in the crypto space. The challenge will be striking a balance between fostering innovation and protecting investors in a fast-evolving industry.