UPDATE 2-Temasek's new firm may give greater say to Singaporeans

* Firm may allow co-investments by Singaporeans - sources

* Temasek chief strategist Charles Ong to head new firm

* Temasek says in process of building up Seatown Holdings (Recasts with Temasek confirmation; adds quotes)

By Kevin Lim and Saeed Azhar

SINGAPORE, Feb 10 (Reuters) - Temasek [TEM.UL] has set up a multi-billion dollar investment company, in what may be a small step towards allowing ordinary Singaporeans greater say in the affairs of the city-state's wealth fund as co-investors.

The shift for tightly controlled Temasek comes after it faced a barrage of criticism last year on soured investments in the West, where it lost billions backing banks such as Merrill Lynch (BAC.N) and Barclays (BARC.L).

Temasek's CEO Ho Ching, the wife of Singapore Prime Minister Lee Hsien Loong, had said in July that the fund may ultimately allow the public to jointly invest with it in projects. [ID:nSIN474700]

Sources briefed on the plans told Reuters that the firm, to be called Seatown Holdings, will invest in a wide range of assets including stocks and bonds. It may eventually allow ordinary Singaporeans to co-invest with Temasek, they said.

"Seatown will have to compete against other listed corporate entities and investment firms for investments from the man-on-the-street," said Eugene Tan, an assistant professor of law at Singapore Management University (SMU).

Temasek confirmed the firm will be called Seatown, or English for Temasek, and that it will be headed by the Singapore fund's senior managing director and chief strategist Charles Ong. It declined to say how much the new firm will manage or outline the investment strategy.

"We have a small core team seconded from Temasek, and are still in the process of building up the Seatown team," a spokesman for the Singapore state investor said.

Ong, a former banker at Lazard Freres & Co and Deutsche Bank, has been with Temasek since 2002. Nasser Ahmad, who was chief investment officer and managing partner of DiMaio Ahmad Capital in New York, will be co-CEO of Seatown, while Margaret Lui, a Temasek managing director, will be its chief operating officer.

Asian Investor, a financial news website, said the new firm will manage an initial $3 billion. Singapore's Accounting and Corporate Regulatory Authority, or ACRA, shows Seatown has a paid-up capital of S$1.68 billion ($1.2 billion).

Temasek, which manages a portfolio of S$172 billion ($122 billion), already owns Fullerton Fund Management that manages hedge funds, mutual funds and fund of funds on behalf of Temasek as well as external investors.

DEMYSTIFYING TEMASEK?

The Singapore fund, like many other sovereign wealth funds around the world, suffered heavy losses during the global financial crisis, particularly on investments in U.S. and UK banks. But the value of its portfolio rebounded significantly last year as global stock markets rallied.

Temasek, whose sole shareholder is Singapore's Ministry of Finance, reported a 30 percent drop in assets for its financial year ended March 2009 but said its compounded annualised total shareholder return since its inception in 1974 was 16 percent.

Following high profile investments, the role of sovereign wealth funds, which manage an estimated $3 trillion in assets globally, has come under scrutiny from Western governments worried their investments may be politically motivated.

"Seatown may help remove some of the mystery and myths that continue to surround Temasek," said SMU's Tan. "It will remain a sovereign wealth fund but one that will now see new stakeholders and investors among Singaporeans and non-Singaporeans," he added. ($1=1.416 Singapore Dollar) (Editing by Neil Chatterjee and Muralikumar Anantharaman)