TradecoHoldco

Killing it like a hooker in Hong Kong

Investment Banking and Oligarchies

One of my favorite alltime articles is Simon Johnson’s piece The Quiet Coup in The Atlantic. His thesis is basically that investment bankers have become the oligarchs of Western society, extracting rents by manipulating politics.

One of the funny things that has occurred to me over the last year is that this is precisely the reason there is boom in investment banking across Asia now, where oligarchies are being legitimized by investment banking.

The Asian’s who have long been branded with the red letter of corruption and cronyism,  are now moving into the more sophisticated legitimate financial nepotism which has been the hallmark of Western capitalism for the last two decades.

The signs are there if you care to interpret them. In Hong Kong, Singapore and most of the other stock exchanges in Asia, insider trading is widespread and rarely if ever prosecuted.  Stock pools to manipulate prices are present on a level similar to the 1920s in the US. The regulatory bodies of these countries exist to hoodwink the populace and maintain the facade of fairplay,  allowing middle class money to be channelled en masse into the market.

Related party deals to channel profits out of public companies are present in many of the family owned businesses which are now public. Amankudari, the Japanese practice of bureaucrats joining companies that they regulate post retirement is present to a large degree in China and most of the North Asian countries. This is becoming blended with the Government Sachs model which is being adapted across Asia.

The Asian elites have become more experienced at hiding nepotism through the mask of meritocracy. Most tycoons and even upper middle class professionals in Asia pack their kids off to Australia, the US, and the UK for education. The much higher high school educational standards in the elite Asian high schools ensures that these kids outperform their peers in Western institutions. A mediocre student from the Island School in Hong Kong or Raffles Junior College will probably be in the top of his class at USC or Cornell as long as he avoids engineering.

Tycoons then cycle their kids through a couple of years of investment banking and a couple of years at the family business and then pack them off to  HBS  or Stanford GSB. The desks of Credit Suisse and Citi in Asia used to be filled with sons-and-daughters. Don’t even get me started on Goldman.

You want to look at the prototype:  here’s the Bakrie heir’s facebook and linked in profile

Grad School:
College:
High Schools:
  • Finance Analyst

    Solmon Brothers Inc, New York

    (Investment Banking industry)

    July 1996 — June 1997 (1 year )

    Investment Banking

If I have one definition of investment banking, it’s legal rape. It’s about figuring out loopholes in laws and contracts and policies to extract low risk persistent profits. Investment bankers and hedge funds specialize in the fine print and plausible deniability. And this is the great gift that Western civilization has given the East. The old stigma of corruption and envelopes under the table, has been replaced by “consulting” arrangements and offshore transfers. Nominees and power of attorney are used to hide the ownership of assets, and every tycoon understands the use of SPVs (Special Purpose Vehicles) in BVI (British Virgin Islands), HK, Singapore etc.

What surprises me now is that Western MSM reporters are still enormously biased against these nepotistic arrangements in Asia, all the while ignoring what happens in Western markets on a daily basis. The FT has no problem identifying shady goings on in Indonesia (say in the Dipasena/Red Dragon) transaction, while shoving shadiness in say Sbir Energy to the Alphaville blog. I mean are they even able to come to terms on how corrupt the AIM market is? Once upon a time, every single shady two bit company with a license for something that I would come across in Asia would say they plan to list on AIM.

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February 6, 2010 Posted by | Uncategorized | , , , , , , , , , , , , , , , , | 1 Comment

The straight talk on talent shortage

I loved this quote in the WSJ today:

“When executives talk about a talent shortage in their ranks, they’re really talking about a commitment shortage,” which stems partly from pay inequality, says Rakesh Khurana, an associate professor at Harvard Business School. “The greater the inequality, the less willing employees are to learn specific company ways of doing things that aren’t going to be useful to their next employer.”

He says less than one-third of M.B.A. graduates from elite business schools are pursuing corporate management jobs, compared with two-thirds in 1970.

WSJ Link

Unbelievably true. I’ve seen this in every damn company in Singapore and Asia. As Chief Exec of a corporate, you’ve gotta hold down costs, meaning the compensation of the people who work for you, while keeping your staff.  Keep em happy enough to stay with you, but pay them as little as possible…

The second point, that less than one third of elite b school grads head to corporate jobs, is absolutely true. WSJ surveys of b schools for example, which are somewhat different from other surveys because they ask corporate recruiters which b schools they like, show HBS and GSB at the bottom, because students there have many other options than the typical corporate training program. Notably consulting, private equity, hedge funds and investment banking.

April 28, 2008 Posted by | Uncategorized | , , | Leave a comment