The Singapore Clones; Temasek started as a novel experiment in state-run investing, but now its success is inspiring copycats.(state investment fund Temasek Holdings)

Byline: Sonia Kolesnikov-Jessop

If copying is the most sincere form of flattery, Singapore should be red in the face. Its Temasek Holdings was once a novel experiment: a state investment fund that molded renowned brands, like Singapore Airlines and SingTel. In recent years, as Temasek began to invest abroad, it was at first greeted by neighbors like Malaysia and Indonesia as an unwelcome foreign intrusion. But now several Asian states, including these detractors, are more or less openly trying to copy the Temasek model.

At a time when much of the world is questioning the free-market ideal, the appeal of a quasi-public investment vehicle is clear. It gives Asian political leaders a proven mechanism for directing investment and shaping national industrial champions. Taiwan has plans to consolidate some $31 billion in state shares into a holding company modeled on Temasek. Indonesia is considering a similar idea to reorganize and improve the efficiency of some of its state giants, like the oil and gas company Pertamina. And while Malaysia would never admit to following the lead of its neighbor and rival, economists say the recently reorganized Khazanah, the national investment agency, looks like a carbon copy of Temasek in its early days.

Singapore created Temasek in 1974 with the idea of nurturing strategic industries and channeling investments to support economic and social goals. Temasek has since grown into a giant with $56 billion in assets, controlling roughly a third of the Singapore stock market. But after returns began to slow at home, from an annual average of 18 percent down to just 3 percent in the last decade, Temasek began to diversify regionwide. Its move into the Indonesia bank sector provoked attacks from the political opposition, and the ambitions of SingTel (64 percent owned by Temasek) in Malaysia were once quashed because of security concerns. Still this has not slowed the advance of Temasek. In 2002 a new executive director, Ho Ching (the wife of the current prime minister), vowed to refocus on profits over social goals. That has meant further investments in Asia, including more than $1 billion last year in India alone.

Each copycat is following Temasek in its own way. For Taiwan the priority appears to be on exerting some influence on national champions, like Mega Financial, Taiwan's second largest financial company, as they begin to seek out higher profits abroad. Jakarta's aims hark back to the Temasek of 30 years ago, hoping to raise the returns of state ...