Singapore Hedge Fund

Alternative asset management in Singapore

Singapore's sovereign wealth fund's $1.6 billion Profit on Citigroup

Looks like the buy and hold strategy worked out for Singapore’s sovereign wealth fund, after it notched a $1.6 billion profit on a partial sale of its Citigroup Inc. (NYSE:C) stake. The Government of Singapore Investment Corp., or GIC reduced its holding of Citi to 5% from 9%, exchanging its $6.88 billion of convertible preferred stock for Citigroup common stock, it said in a statement. The conversion price was $3.25 per share.

In addition to the sale, GIC can boast of a $1.6 billion paper profit on its remaining stake, according to Bloomberg.

Although Citigroup itself remains mired in toxic assets, GIC’s investment in the bank has fared far better than the investments of other sovereign wealth funds in the financial sector.

A different Singapore wealth fund, Temasek Holdings Pte., took a hit on the sale of its stakes in Bank of America Corp. (NYSE:BAC) and Barclays plc (NYSE:BCS). The Singapore government-controlled entity was Merrill Lynch & Co.’s largest shareholder with a 7.5% stake at the time it was purchased by BofA. Temasek had put $5 billion into Merrill at $48 a share between December and February, but a reset payment and additional $900 million averaged out the fund’s buy-in price to only $23.11 a share, based on Bloomberg calculations from exchange filings. Bank of America’s original stock offer came in at $29 a share, giving Temasek a $1.5 billion profit, but the markets weren’t kind to the stocks of either BofA or Merrill, which continued to fall before the deal closed, leaving Temasek’s investment in the loss column.

For its part, China’s sovereign wealth fund China Investment Corp. hasn’t been swayed by its investments in Blackstone Group LP (NYSE:BX) and Morgan Stanley (NYSE:MS) still being under water. The fund is doubling down on private equity, hedge funds and fund-of-funds investments in hopes of capitalizing in 2008’s drop in valuations. In spite of the fund’s $297.5 billion portfolio losing 2.1% in 2008, CIC said that it plans on investing $6 billion in hedge funds by the end of 2009.

In June, CIC put $500 million into a Blackstone hedge fund unit and bought another $1.2 billion of Morgan Stanley’s stock. The fund had famously paid $3 billion for a 9.9% stake in Blackstone right before the private equity firm’s 2007 IPO, only to see the value of its stake get crushed when the credit crisis set in and large LBO activity ground to a halt. CIC later increased its stake to 12.5%. Shares of Blackstone closed at $14.89 on Friday, off more than 50% from their IPO price of $31. Morgan Stanley currently trades at $32.53, topping the $28 to $31 range it saw in June. – From the deal

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Billionaire Modi Seeks Island Resorts in Distressed-Asset Quest

Billionaire Bhupendra Kumar Modi, who made his fortune from mobile-phone services in India, is planning to invest $100 million in distressed assets including the island resorts on Batam and Bintan neighboring Singapore.

Modi, chairman of Singapore-based Spice Global with interests from telecommunications to financial services, said he is in talks to buy stakes in all the resorts on the Indonesian islands and wants to transform them into entertainment hubs, flying in Bollywood stars and eventually adding casinos.

“There’s nothing near Singapore as beautiful as these two islands, but they are distressed,” the 60-year old said in an interview at his 63rd-floor penthouse overlooking the casino- resort being built by Las Vegas Sands Corp. “There are a lot of situations emerging where the actual asset is good, but it is distressed because the situation around it is not right.”

Modi, who last year moved from Beverly Hills to Singapore, is aiming to fill a gap left as firms such as Blackstone Group LP and Och-Ziff Capital Management Group LLC scaled back plans to buy distressed Asian assets. He has set aside $100 million for special situation investments, which seek to profit from events such as spin-offs.

He plans to invest with distressed specialists, including hedge-fund firm 3 Degrees Asset Management Pte and former traders from Lehman Brothers Holdings Inc. who are opening their own shop to take advantage of rising Asian corporate defaults.

3 Degrees

Modi earned 21 billion rupees ($434 million) selling his stake in Noida, Uttar Pradesh-based Spice Communications Ltd. to Idea Cellular Ltd. last year. He said he has a net worth of $1.5 billion to $1.6 billion and cash of $700 million to $800 million.

Spice Global is planning a $1 billion initial share sale, Modi said in June.

He plans to invest $20 million in a private-equity fund managed by 3 Degrees to buy a stake in a resort in Bintan through the Singapore-based distressed asset manager.

Modi said he seeks management control of the companies he invests in. He became chairman of the board of MediaRing Ltd. and replaced its chief executive officer and chief financial officer after agreeing to buy as much as 20 percent of the Singapore-based Internet telephony firm for about S$60 million ($42 million) last month.

The billionaire said he expects returns of more than 100 percent if he can change the way Bintan and Batam, 45 minutes from Singapore by ferry, are being run. He will engage policy makers in Singapore and Indonesia to develop infrastructure and promote more visitor arrivals there, he said.

Supply-Demand

About $1 trillion of corporate debt is stressed and distressed in Asia today, with only about 10 “substantially capitalized” distressed investing firms chasing it, according to Robert Petty, New York-based co-founder of Clearwater Capital Partners LLC, which manages a $1.7 billion fund of Asian distressed assets.

“The supply-demand mismatch is interesting,” he said. “Today is an extraordinary market opportunity if you have the depth of team to be able to do all dimensions of distressed.”

Bonds are termed distressed when they yield at least 10 percentage points more than similar-maturity government notes. Near-distressed or stressed bonds have yield premiums of between 7 percentage points and 10 percentage points.

Asia-focused distressed and event-driven hedge funds and private-equity firms manage about $67 billion in assets, according to Eurekahedge Pte, a Singapore-based data provider.

Record Defaults

Standard & Poor’s expects “record levels of defaults” in Asia as the global recession hurts the region’s export-dependent economies and leveraged industries, it said in a June 1 report. Nine rated borrowers defaulted in the first five months of the year, matching the peak of the region’s 1998 financial crisis, S&P said.

“There will be a shedload of money to be made in Asian distressed over the next 18 to 24 months,” said Michel Lowy, former head of Asia-Pacific Strategic Investment Group at Deutsche Bank AG, who has been investing in distressed assets for 13 years.

Lowy is starting SC Lowy Financial (HK) Ltd., a Hong Kong- based distressed investment business which will focus on the region, and will seek “all asset classes within the illiquid value investment space” including special situations and distressed. Investment opportunities in this area will likely peak in one to three years, he added.

Lowy said his most successful deal while at Deutsche Bank was the German firm’s investment and reorganization of Spice Communications. He declined to say how much the bank made because the information is private.

SSG Capital

Hedge-fund managers investing in Asian distressed debt returned 1 percent in the first eight months of 2009, according to Eurekahedge. Asia-focused event-driven funds gained 16 percent.

Edwin Wong, an ex-Lehman managing director, set up SSG Capital Management with former colleagues including Andreas Vourloumis to start a fund to invest in distressed assets in Asia outside Japan. Modi said he plans to co-invest with Vourloumis, who made money for Lehman investing in Spice Communications. Vourloumis was not immediately available for comment.

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Sovereign Funds back in business?

The sovereign-wealth funds are stirring. After going quiet as markets crashed and some high-profile investments in U.S. financial companies went awry, the huge pools of capital are back doing deals.

China Investment Corp. is planning a $500 million investment in Blackstone hedge funds and took part in Morgan Stanley’s recent rights issue. The Qatar Investment Authority is considering an investment in Porsche. And with the oil price back above $70, cash is flowing back into Middle East funds.

[foreign affair]

The moves come at a time when significant new investments by SWFs — with between $2 trillion and $3 trillion under management according to the IMF — have been thin on the ground. Figures from Dealogic put the value of cross-border equity investments by SWFs so far this year at $21.1 billion. But that is flattered by the $12.5 billion conversion of Citigroup preferred shares held by Singapore’s GIC and the Kuwait Investment Authority into common stock. Last year, total investments were $46.9 billion, and they reached $55 billion in 2007.

But as SWFs regain their risk appetites — no doubt helped by successful deals such as the recent profit Abu Dhabi’s International Petroleum Corp. recently made selling most of its $5.6 billion stake in Barclays Bank — they could be somewhat different investors. Some face serious criticism at home for losses made, especially on Western financial institutions during the crash. In China, for example, many wonder why CIC doesn’t spend its cash supporting the country’s own companies more.

Those who have had dealings with CIC say it is likely to focus more on investing in resource sector and alternative energy companies. Abu Dhabi’s IPIC, after selling out of Barclays, says it is pursuing “hydrocarbon-related” opportunities. Singapore’s Temasek, meanwhile, already has been reorienting its portfolio more toward investments in Asia and Singapore itself.

It seems probable funds will try to invest both closer to home, and in industries that fit more neatly with their own countries’ policy objectives. When they venture overseas, they are also likely to have learned from their mistakes and to be savvier in structuring deals.

But as SWFs get more confident, foreign investments are likely to remain vital. First, capital constrained Western companies need deep-pocketed investors, so political opposition to SWF deals could be more muted than before. That is particularly true if funds are smarter in positioning their investments as strategic partnerships.

In addition, despite protestations that some SWFs want to focus on Asian opportunities, or investments closer to home, there aren’t enough big opportunities to soak up all the cash. Large, liquid Western markets are likely to regain their allure.

From WSJA

Jean Viry-Babel
senior partner
VBK partners

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China Ready to Place Bets on Hedge Funds

China Investment Corp. is poised to invest $500 million in a Blackstone Group hedge-fund unit as part of a broad effort to put cash to work while global markets are rallying but remain below earlier peaks.

A hefty injection from China would be welcome news for hedge funds, eager to raise fresh capital after brutal markets and an exodus of investors hurt the industry. It also would offer another sign that some big money is stepping off the sidelines as markets stabilize world-wide.

Companies and investors are watching to see if sovereign-wealth funds will once again channel significant money into new deals, after several were burned by high-profile U.S. investments during the financial crisis. Though Middle East funds have ratcheted up spending lately, some remain hobbled by woes at home.

Lou Jiwei

EyePress News/Newscom

STEPPING UP: Lou Jiwei of China Investment Corp. sees opportunity.

CIC is considering opening its checkbook to a handful of hedge funds, a move that comes as CIC Chairman Lou Jiwei is concerned his fund may miss opportunities near the bottom of the market, according to people who work closely with the Chinese fund. That is a reversal in attitude from December, when Mr. Lou said he didn’t have “the courage” to invest in the developed world’s financial institutions because “we don’t know what trouble they are in.”

A spokeswoman for CIC and a spokesman for Blackstone declined to comment.

Set up in 2007 and capitalized by Beijing, CIC is one of the world’s largest sovereign-wealth funds, controlling some $200 billion. The fund already knows Blackstone well, and has suffered some from the relationship. CIC invested $3 billion for a nearly 10% stake in Blackstone just before it went public in 2007, an investment that brought it ridicule in China when the private-equity firm’s shares fell. Since Blackstone’s IPO two years ago this coming Monday, Blackstone shares have dropped about 64%, leaving CIC with a loss of about $1.9 billion.

Still, CIC managers later struck a deal with Blackstone allowing the fund to increase its stake to 12.5%, signaling confidence in the firm’s prospects. And committing capital to Blackstone’s hedge-fund unit is a bet more on its expertise than its stock.

[China Investment Corp.]

That Blackstone division has about $26 billion in investments doled out to hedge funds on behalf of Blackstone clients. One of the world’s largest so-called fund-of-fund managers, Blackstone commands access to some of the biggest funds.

It isn’t clear how much CIC might allocate to hedge funds. In the past, CIC officials have said they plan to farm out up to $80 billion to asset managers, with private-equity firms and hedge funds likely to get a chunk of that capital.

Prominent hedge funds have been talking to CIC for months. Eric Mindich of Eton Park Capital Management and John Paulson of Paulson & Co. are among hedge-fund bosses who have met with CIC representatives, among other Asian investors, in recent months, according to people familiar with the matter. Wall Street insiders see those hedge funds as on a relatively short list of managers more likely than peers to get CIC money, though such decisions could take months.

Investment staffers at the Chinese fund also have sought the hedge-fund managers’ view of the credit crisis and global markets in general.

Last year, James Simons, head of big hedge-fund firm Renaissance Technologies, talked with CIC about selling a stake in Renaissance but didn’t do a deal, people familiar with the matter said.

Spokesmen for the hedge funds declined to comment.

The China fund’s plans don’t necessarily mark a trend toward more global investments by sovereign-wealth funds. Temasek Holdings Pte. Ltd., Singapore’s state-owned investment firm, this year has moved to focus more on Asia investments, selling off stakes in foreign banks at big losses.

In the Middle East, there has been continued deal activity. In March, Abu Dhabi investors snapped up a 9.1% stake in Daimler AG. And earlier this month, the government-backed investment company of Qatar said it is considering a deal to invest in Porsche Automobil Holding SE. The buying comes as the region’s fortunes have started to turn around, thanks in large measure to climbing oil prices.

But some big Mideast players remain reined in. Kuwait, hobbled by political infighting and a banking crisis, withdrew from a planned joint venture with Dow Chemical Co. late last year, blaming the global financial crisis. And Dubai, another U.A.E. emirate, is still reeling from its property-market bust and lately has refrained from big international deal-making.

CIC has been ramping up activity. CIC in late 2007 put $5.6 billion in Morgan Stanley convertible securities whose value later plunged. But earlier this month, CIC plowed an additional $1.2 billion into Morgan Stanley. On Tuesday, CIC struck its first known property deal, agreeing to commit 200 million Australian dollars (US$158.9 million) to a financing facility for Goodman Group, Australia’s largest industrial-property trust.

Elsewhere, CIC put $3.2 billion toward a $4 billion fund managed by J.C. Flowers & Co. to hunt for opportunities among financial institutions.

From WSJA

Jean Viry-Babel
senior partner
VBK partners

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Blackstone Cancels Plan for Asian Event-Driven Fund

May 15 (Bloomberg) — Blackstone Group LP, the world’s biggest buyout company, canceled a plan to start a hedge fund that initially aimed to invest as much as $1 billion in Asian companies affected by events such as mergers and reorganizations.

Blackstone decided not to proceed with the Asian event- driven fund “after a review of the market environment and our strategic priorities globally,” New York-based Blackstone spokesman Peter Rose said in an e-mail. The fund was to be managed by Blackstone A.M.N. Advisors.

Most of about 17 A.M.N. team members, including Chief Investment Officer Aaron Nieman, left after the March decision, said four people familiar with the matter, declining to be identified because the information isn’t public. The rest have been transferred to other Blackstone departments, they said. Rose declined to comment on specific personnel.

Global hedge fund assets slumped 31 percent by March from a mid-2008 peak as a result of the worst average annual return and record investor redemptions, according to Chicago-based Hedge Fund Research Inc. The number of hedge funds and funds of hedge funds fell for the first time in at least 19 years in 2008, the research firm’s data showed.

“Capital raising in these tight times, especially for funds with longer lockups, is very, very tough no matter how big you are and how good your story is,” said Paul Smith, a Hong Kong-based director at Triple A Partners Ltd., which provides startup capital to hedge funds. “Investors want transparency and liquidity and these are hard to provide in an event-driven fund.”

Scaling Back

New York-based Blackstone has been scaling back its hedge fund operations in the region, joining peers such as Citadel Investment Group LLC and Och-Ziff Capital Management Group LLC to focus on their biggest markets. Blackstone’s GSO Capital Partners LP unit, a manager of credit hedge funds, shut down its Asia investment desk less than four months after its opening in September, people familiar with the matter said in January.

“In this market environment where both capital and people are constrained, it is especially important to be disciplined in where you allocate resources to achieve the greatest return,” Rose said in the e-mail. GSO decided to withdraw from Asia to concentrate in Europe and U.S., where it saw greater opportunities in the short- and medium-term, he added.

Hedge Fund Push

Blackstone Chairman Stephen Schwarzman has pushed the firm he founded with Peter G. Peterson in 1985 deeper into hedge funds and merger advice to offset the decline in private-equity deals.

Blackstone announced the hiring of Nieman in May last year to start what was then named Blackstone Altius Advisors. The unit, later renamed A.M.N., planned to start its first Asia- focused event-driven fund on Oct. 1.

A.M.N. targeted as much as $1 billion for the fund, including $150 million committed by Blackstone and its employees over the first three months, said documents sent to investors in September.

The plan was delayed and the fundraising target reduced after the market downturn made it harder for hedge funds to raise money.

Funds seeking to profit from “corporate stress and balance sheet dysfunction” may indeed find better opportunities in U.S. and Europe, said Peter Douglas, principal of Singapore-based hedge fund consulting firm GFIA Pte. “Asia is, relative to the developed world, in much better shape.”

Asian event-driven investments may become more profitable later this and next year with rising corporate defaults, bankruptcies and reorganizations, Triple A’s Smith said.

Fewer New Funds

Globally, hedge fund starts dropped to 659 last year, the slowest since 2000, HFR said. By contrast, hedge fund liquidations jumped more than 73 percent to 1,471 in 2008 over a year earlier. Investors pulled a record $155 billion out of the industry last year and another $103 billion in the first quarter, HFR data showed.

In 2008, 75 new Asia-focused hedge funds raised a combined $3 billion, or $40 million each on average, according to London- based publication HedgeFund Intelligence. A year earlier, 116 such funds brought in $7.8 billion, or $67.5 million each.

Nieman and Kevin Cho, an A.M.N. senior analyst, are rejoining former employer SAC Capital Advisors LP in its Sigma Capital Management unit, said Jonathan Gasthalter, a New York- based spokesman for the hedge fund manager founded by billionaire Stephen Cohen.

Nieman was a portfolio manager and managing director at SAC, having built its first Asia-Pacific-focused event-driven fund, before leaving to join Blackstone, said the A.M.N. documents.

From Bloomberg

Jean Viry-Babel
senior partner
VBK partners

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