Killing it like a hooker in Hong Kong

The GIC exodus

Nemo made a comment in my post about Temasek that there are a lot of GIC people leaving, and I wanted to cover it in a little more detail than a simple reply.

First the GIC and Temasek are completely different institutions and can be seen as almost competing entities, trying to prove themselves to ruling power structure. Some of the decisions they make are to impress party elders and for the personal political goals of their managers rather than pure economic sense.

The GIC is far more cerebral and professional. They have been hiring foreigners into their ranks for ages, paying them fairly well, promoting them based on merit. They’re essentially a large multi-strategy hedge fund, very professionally run. The key man behind the GIC is former Deputy Prime Minister Tony Tan, who is currently the Executive Director. He is a very sharp character, and has LKY’s deep respect if not affection. TT has been willing to take on the government whenever he feels it’s in the wrong, a rarity in Singapore.

Temasek is a keiretsu. It’s was formed as the holding company for state assets and current portfolio still includes majority stakes in Singtel, Singapore Air etc. To a large extent its was merely a warehouse cum overseer for state assets till Ho Ching took over. She wanted to remake it into her own personal private equity firm. Unfortunately she was stuck with a group of staff who were all former employees of all these companies like Singtel and had joined the parent. So Temasek, though it is trying to change, is largely composed of Singaporeans. The other issue is that even though Temasek is technically the major shareholder of all these firms, they can’t exercise effective control over them. If Temasek tells Singtel to do something, the head of Singtel lobbies the government directly on what he wants to do. This was what forced Charles Goodyear, the BHP CEO who was brought in to take over from Ho Ching, out. He came in and actually wanted to take firm control of the assets on the balance sheet, something which Temasek simply couldn’t tolerate.

So running Temasek is like trying to run an international PE firm making investments in emerging markets, while your staff are largely a bunch of bureaucrats with state owned enterprise experience with little international experience, and about half your balance sheet is forever frozen and beyond your control.

What’s happened in the last 2-3 years, is that Temasek and the GIC have started to converge. The UBS equity infusion deal was done by GIC because one of the senior managers wanted to show that “Temasek isn’t the only one who can do big deals”. The financial services equities team were overridden by senior management, and were told to justify the deal. Meanwhile, Temasek has been in a real push to change the DNA of the organization from the entry level up, ever since the Thaksin deal, hiring foreigners and foreign trained Singaporeans, trying to become more institutional and less idiosyncratic in decision making.


Why is there currently an exodus of people from the GIC? It’s largely a result of a couple of things.

Firstly, there is a huge pay differential between an international multi-strat and the GIC. Enormous. So as the financial services and private wealth markets develop in Asia, guys at the GIC are finding that they can just tap a few rich families, raise a hundred mill, and do their own thing. The stars at the GIC, who are promised that someday they will lead the organization, watch as less talented peers leave the organization and make multiples of what they make. The pay differential was fine when the GIC was the only game in town for Singaporean and Asian finance guys who couldn’t tap Western institutional investors, but that time has now passed.

Secondly, the guys at the GIC are some of the few people with extensive Asian investment experience, dating back 10-20 years, who are still available in the market. Everyone else who has that much experience is either dead, retired, or running their own thing.  So they are very much in demand.

So the environment for these guys to get some family money to run is very conducive. And so more and more of them are leaving after gaining the necessary experience.

February 27, 2010 Posted by | Uncategorized | , , , , , , , , , , , | 2 Comments

Singapore Inc’s Bad Year

It’s unusual – but for some struggling investors somehow comforting – to see that occasionally, the Singaporeans make bum investment decisions and end up losing (a lot) of money.

Following earlier news that Australand Property Group, the Australian unit of Singapore’s CapitaLand, will seek as much as A$557m ($532m) from shareholders after first-half profit dropped 79 per cent amid plunging property values, it seems timely to examine the forays by various Singaporean entities into ventures Down Under.

While business media in Australia focused on the shock profit warning by ANZ bank, the bigger shock, according to Australian commentator Stephen Mayne, was Australand’s announcement of an emergency A$557m capital raising.

As Mayne noted in his daily blog The Mayne Report, Australand began the day with a market cap of A$905m and claimed net tangible assets of A$1.66 per share, despite the stock having tumbled from a December 2007 peak of A$2.60 to Friday’s close of just 98c.

Lo and behold, says Mayne, “today we get a one for one rights issue priced at just 60c, with Sing Inc only promising to step in for their share of $302m whilst the remaining $255m could fail if the stock tanks when trading resumes”.

Wow, that is a shocker, Capitaland refused to underwrite the entire issue, which basically indicates a lack of confidence. That’s going to drive the price below the issue price and lead to the issue not closing. Ouch.

If Singapore Inc wasn’t standing behind Australand, you have to wonder if the company would have even survived because for shock value today’s announcement is very similar to the surprising $500m capital raising that then-MFS chief executive Michael King unveiled on Friday, January 18, 2008, before he resigned the following Monday.

Australand’s chairman made the following statement at the April 17 AGM: “Our balance sheet and the facilities we have in place are well supported by quality assets and strong operating cash flows from the business.”

The company’s chief executive Bob Johnston also gave no hint of the coming drama, reassuring shareholders that gearing was only 40.4 per cent, net profit came in at A$269m in 2007 and distributions were a most impressive 17c a share.

The collapsing listed property trust sector has turned up some extraordinary developments but, as Mayne notes, “if even the Singapore government’s vehicle is in trouble with total debts of A$1.5bn, things must be really crook”.

And, when you sit down to tabulate the – er, less lucrative – among Singapore Inc’s Aussie experiences of late – “terrible” is Mayne’s word. Singapore Power laid out A$8.14bn in cash for the Alinta east coast assets last August and then failed to flip it into SP Ausnet. This has left Singapore Power lumbered with A$17bn in debt and the same power assets are today probably worth about A$6bn.

A little untrue. The debt is probably non-recourse. And not to worry, long term. They’re going to have low yields for a couple of years, but this should recover.

Singapore Inc’s Temasek meanwhile ploughed A$400m into ABC Learning at $7.30 a share 12 months ago and has watched almost 90 per cent of that evaporate.

Ouch. This I did not now.

Similarly, the decision to take a one third interest in the Myer Melbourne property play at a valuation of A$600m now looks ridiculous, as does the $717.5m purchase of a half share in Westfield Parramatta in April 2007 on a skinny yield of about 5 per cent.

On top of the recently not-so-profitable Singaporean investments in western banks, the shine is beginning to look distinctly duller on Singapore’s famed investment acumen.

In: Capital markets

July 29, 2008 Posted by | Private Equity, Singapore | | Leave a comment

Singapore’s problems

Minister for Foreign Affairs George Yeo on the SPG culture

Minister for Foreign Affairs George Yeo’s Interview with Astro Awani Television on 4 February 2008

Q: Of course. So what are your comments then on generally people coming into Singapore? As you said it’s a city-state, you have got limited resources and then you are going to have this sporting event that will bring thousands and thousands and thousands of people. I mean it’s great for business but will Singapore be able to cope with it?

Minister: That’s a problem that we have got to solve. This is not a theme park, this is home for us. [] And Singaporeans sometimes get upset by this because prices go up or foreigners have habits which we are not familiar with, they make friends with our girls, I mean so there are all kinds of problems which we face because we are opening up even more than before. [] You open the windows, the flies come in, and of course you also get fresh air and the sunshine.

Full text

April 3, 2008 Posted by | Singapore | , | 1 Comment