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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.

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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.

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

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