Wealth Added
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18 OUR PORTFOLIO HIGHLIGHTS An Alignment with Shareholder Value We track Wealth Added (WA) as a key performance indicator . Our group WA for the year was S$1 5 billion, with S$6 billion from direct investment activities. The key benefit of using WA as a performance indicator is that it takes into account the risk-adjusted return, called the capital charge, that an investor would expect. It factors in the capital employed to achieve the returns, and the risk associated with each investment. To earn positive WA for our shareholder, Temasek must deliver a return that is higher than its capital charge. The return calculation for Temasek also explicitly takes into account any change in the perpetuity value of the current costs of operating Temasek. Calculating Wealth Added The total return to a shareholder is calculated as the change in the market value of the investments (or the change in book value in the case of unlisted assets), plus dividends to the shareholder, adjusted for any net new capital from the shareholder. In the case of Temasek, the total return to our shareholder is further adjusted for any change in the perpetuity value of the costs of operating Temasek, i.e. the change in the present value of a recurring stream of the current costs of operating Temasek. The capital charge or minimum required return for the shareholder is defined as a risk-adjusted cost of capital return on the market value of his portfolio at the start of the year. The Wealth Added for the shareholder is his total return less the capital charge. Example: Consider a listed investment that has a market value of $1,000 at the start of the year, which then rises to $1,200 at the end of the year. The investment pays dividends of $50 during the year, and issues $120 of new equity during the year. Assume the cost of capital is 10%, giving a capital charge of $100, or 10% x $1,000 on the starting market value. The wealth added created by this investment for its shareholder is therefore = (1,200 - 1,000) + 50 - 120 - (10% x 1,000) = $30. Wealth Added = Chang e in Market Va lue + Div ide nd Pa id - Net New Ca pital Received - Capita l Cha rge - Perpe tuity V alue of Op erati ng Cost Market Value (MV) of our portfolio as at 31 Mar 06 MV as at 31 Mar 05 = Wealth Added for our shareholder for FY 2005 ended 31 Mar 06 + Change in MV + Dividend paid to our shareholder - Net new capital received by us - Change in perpetuity value of our operating cost = Total return to our shareholder - Capital Charge on MV as at 31 Mar 05 WEALTH ADDED MEASURES EXCESS RETURNS OVER HURDLE
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Temasek Wealth Added
Transcript of Wealth Added
7/21/2019 Wealth Added
http://slidepdf.com/reader/full/wealth-added 1/1
18 OUR PORTFOLIO HIGHLIGHTS
An Alignment with Shareholder ValueWe track Wealth Added (WA) as a key performance indicator. Our group WA for the year was S$15
billion, with S$6 billion from direct investment activities.
The key benefit of using WA as a performance indicator is that it takes into account the risk-adjusted
return, called the capital charge, that an investor would expect. It factors in the capital employed to
achieve the returns, and the risk associated with each investment.
To earn positive WA for our shareholder, Temasek must deliver a return that is higher than its capital
charge. The return calculation for Temasek also explicitly takes into account any change in the
perpetuity value of the current costs of operating Temasek.
Calculating Wealth Added
The total return to a shareholder is calculated as the change in the market value of the investments (or the change inbook value in the case of unlisted assets), plus dividends to the shareholder, adjusted for any net new capital from the
shareholder. In the case of Temasek, the total return to our shareholder is further adjusted for any change in the perpetuityvalue of the costs of operating Temasek, i.e. the change in the present value of a recurring stream of the current costsof operating Temasek.
The capital charge or minimum required return for the shareholder is defined as a risk-adjusted cost of capital returnon the market value of his portfolio at the start of the year.
The Wealth Added for the shareholder is his total return less the capital charge.
Example:
Consider a listed investment that has a market value of $1,000 at the start of the year, which then rises to $1,200 atthe end of the year. The investment pays dividends of $50 during the year, and issues $120 of new equity during theyear. Assume the cost of capital is 10%, giving a capital charge of $100, or 10% x $1,000 on the starting market value.
The wealth added created by this investment for its shareholder is therefore = (1,200 - 1,000) + 50 - 120 - (10% x1,000) = $30.
Wealth Added= Change in Market Value
+ Dividend Paid- Net New Capital Received
- Capital Charge- Perpetuity Value of Operating Cost
MarketValue (MV)
of ourportfolio
as at31 Mar 06
MV as at31 Mar 05
= Wealth Addedfor our shareholder for
FY 2005 ended 31 Mar 06
+ Changein MV
+ Dividendpaid to ourshareholder
- Net newcapital
receivedby us
- Changein perpetuityvalue of ouroperating
cost
=Total return
to ourshareholder
- Capital Charge on MV as at31 Mar 05
WEALTH ADDED MEASURES EXCESS RETURNS OVER HURDLE
