TradecoHoldco

Killing it like a hooker in Hong Kong

Breaking News: Temasek sets up its own hedge fund

From Bloomberg:

Seatown Holdings International will employ a multistrategy to invest in assets from stocks to bonds, targeting absolute returns, the people said, asking not to be identified because the information is private.

Charles Ong, chief strategist at Temasek, is the chief executive officer, the people said. Nasser Ahmad, co-founder of New York-based DiMaio Ahmad Capital LLC, a hedge-fund firm specializing in credit products, is the co-chief executive officer, they said.

The size of the hedge fund may be $3 billion, AsianInvestor reported on its Web Site earlier today. Temasek spokesman Jeffrey Fang declined to comment.

Sounds like they are setting up a prop desk. Word on the street is that they will still pay their people very little. Also given Temasek’s traditional top down approach, I wonder how they are ever going to get a research edge when they have a high propensity to ignore the opinions of junior people.

It also sounds like Ho Ching finally got her margin account size increased ; )

Let’s look at the principles:

Charles Ong – chief strategist at Temasek, an ex Malaysian. Former head of Lazard and Deutsche SEA IB. 41, a very young high flyer, but comparatively an underachiever compared to his brother Richard, who was promoted to head of Goldman China. He’s also the man who did the Shin Corp deal, sending Thailand into its endless coup phase.

From China Economic Review:

Now we would like to bring your attention to the curious case of Richard Ong of Goldman Sachs. Ong, a Malaysian Chinese, was not allowed his promotion to head Goldman’s Beijing joint venture, Goldman Sachs Gao Hua Securities, because he failed a government mandated Chinese-language proficiency exam.

That seems odd. Ong was co-head of investment banking in Asia and headed Goldman’s Singapore office before moving to Beijing. He was clearly well-qualified, and, at the age of 42, also on a rapid ascent up the ranks. Goldman is supposed to be the world’s most profitable investment bank, and enjoys special status in China, since it’s one of only two foreign brokerages with management control over its JVs here (the other is UBS). According to the FT, many exemptions have been given in the past to foreign executives whose Chinese wasn’t up to scratch.

..

But can we glean a clue by examining Richard Ong’s resume? According to the FT again, Ong was “instrumental” in Singapore government investment vehicle Temasek’s purchase of ousted Thai PM Thaksin Shinawatra’s Shin Corp last year. But just how instrumental was he? The Nation, a Thai paper, noted that Richard’s brother, Charles Ong, is Temasek’s head of overseas investment strategy and “right-hand man” to Temasek chief Ho Ching. According to Goldman’s website, its Singapore office counts Temasek as a “key client”.

So Charlie is a card carrying member of the Singapore elite oligarchy.

Nasser Ahmad

Nasser Ahmad is the Chief Investment Officer and Manager of DiMaio Ahmad Capital, an investment manager with its headquarters in New York.

Prior to co-founding DiMaio Ahmad Capital in 2005, Mr. Ahmad was a Managing Director of Credit Suisse Capital and the Chief Investment Officer for the Diversified Credit Hedge Fund Group.  Mr. Ahmad spent twelve years at Credit Suisse First Boston (CSFB) where he held senior positions in the Fixed Income trading division. Before moving over to Credit Suisse Capital, Mr. Ahmad ran the Global Credit trading business for CSFB.  Mr. Ahmad started his professional career at Salomon Brothers in 1992.

Mr. Ahmad is on the boards of Breakthrough for Human Rights and the Soros Economic Development Fund.  He is also a board member of the South Asian Action Forum (SAAF), a Political Action Committee (PAC) consisting of community and business leaders that promotes a progressive policy platform with key rising and established U.S. policymakers.  In addition,Mr. Ahmad is a term member of The Corporation Development Committee (CDC) of MIT which helps secure critical financial resources for the Institute.

In 2008, Mr. Ahmad joined the National Finance Committee (NFC) of the Obama presidential campaign and was appointed co-chair of the Asian American Finance committee.

Mr. Ahmad was born and raised in Pakistan.  He graduated from the Massachusetts Institute of Technology where he received a B.S. and M.S. in Electrical Engineering.

What happened to DiMaio Ahmad, well the long and short of it, is that these guys were spun out of CS during the boom era, then Dow Kim at ML (you remember the guy who was single handedly responsible for ML’s horrible credit book) took a stake in them and committed capital. They then embarked on a disastrous strategy of buying high yield notes yielding 10%, levering it up 4-5 times at 6% in order to get a return in the mid teens. They got slaughtered by the crisis, illiquid book, facing future cash calls, a long wind down process for investors to get back their money. Having failed, Jack Dimaio got hired to take over Morgan Stanley’s credit book, leaving everyone else to hunt for their own exits.

Speculation

I will blindly speculate that Nasser will cover all the brown countries ie Middle East, India, Pakistan and parts of South East Asia, while Charles will cover all the yellow countries ie North Asia and parts of South East Asia.  I’m not being racist or anything, but this is actually how the Singapore bureaucracy thinks.

Nasser and Charles are probably getting a share of profits, but no management fee. Few if any of the traders and analysts will get paid hedge fund money, so it will be a training ground for Temasek staff looking to exit to the private sector.

They will probably blow up and have to be bailed out by Temasek. I mean it’s such a clear moral hazard situation that I would expect them to gun the risk. You have an entity that can actually print its own money (Singapore is a hard currency) that is backing you.

Charles probably told Temasek he wanted to make some serious dough and he was thinking of setting up his own fund. Nasser wanted to be closer to his family in Pakistan, now that the parents are older and he’s done his New York thing. Asia is the place to be, so why not move out.

Anyway, will write more about these guys soon.

February 10, 2010 Posted by | Uncategorized | , , , , , , , , , , , , | 6 Comments

Credit Suisse Bonuses: Better than a stock award?

The news that Credit Suisse is going to pay bonuses using its troubled assets has been viewed with glee, both restrained at the NYT and unrestrained at Dealbreaker. But I’m not totally sure that this actually disadvantages the senior bankers in anyway.

Here’s why. Let’s say that the troubled asset pool is currently marked at fair value on the CS balance sheet. Firstly let’s think about this, how do you identify high risk assets? Is it just the interest rate/risk premium on the asset? Nope, let’s say its trading at 30 cents on the dollar, but you bought it (or its marked on your book) at 15 cents on the dollar, then the asset is actually in the money, and hence not troubled. Now I doubt they know what the fair value of the assets really is, but let’s just assume management actually has genuine faith in the statements they’ve been putting out to the market saying that their marks are reasonable.

Now let’s compare handing out bonuses in terms of stock awards versus a slice of the troubled asset pool. What is stock? Shareholder’s equity is the residual value after all other claims have been paid. Hence if the firm were handing out stock awards, each recipient is receiving a portion of the remainder of the hypothetical value of the firm if all assets were sold and the proceeds used to pay off all liabilities.

Now if you hand out a slice of the troubled asset pool, what is the analogy? You look at the asset side of the balance sheet, identify the high risk assets, section them off, and hand them off to a trust to administer them. In theory, this is actually better for the recipients than the stock award. Why? Well let’s say the assets are valued at a distressed but fair market value. In effect what is happening is that a portion of the assets is getting carved out of the benefit of the recipients, who then have a collateralized position. Ie the recipients are actually now have a senior claim on the firm with reference to the shareholders. In the same theoretical value liquidation exercise, they will receive their money before shareholders do, and in effect this reduces the value of the stock.

This is even before the identification problem. How does the bank know which assets are troubled? Let’s say the bank has taken writedowns on its leveraged loans and these are piled into the bonus facility. But then perhaps the bank did not forsee a problem in the commercial mortgage market and leaves these on the balance sheet. The shareholders are still exposed to the commercial morgages as residual claimants, while the leveraged loans, if they have been written down far enough, might eventually be worth more than their written down value, and the shareholder no longer have a claim on them.

Of course most of us know that the assumption here is wrong. Those assets are not marked at fair value and CS knows it. Why no one calls them on this shit, I have no idea. Plus they’re supposedly providing leverage to the facility. So what they’re saying that the recipients are going to take first losses. Which means more of less that CS is paying bonuses using stuff that they already know is worthless.

Why an accounting or regulatory body doesn’t call these guys out on this shit is beyond me. But, Dealbreaker is right, CS bankers are getting screwed worse than their counterparts at any other bank.

December 19, 2008 Posted by | Uncategorized | , | Leave a comment