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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Fullerton aims to extend Singapore’s reach by wooing the European investor

The city state of Singapore punches well above its weight in the world of investment. Between them Temasek Holdings and the Government of Singapore Investment Corporation, the tiny nation’s twin sovereign wealth funds, manage an estimated $400bn (£245bn, €280bn) of assets.

But Singapore is not resting on its laurels; it is about to wade into the congested European asset management industry as part of a plan to raise its assets under management higher still.

Fullerton Fund Management, the funds offshoot of Temasek, currently manages just $2.3bn of external money, in addition to the assets of its parent.

But Fullerton hopes to bolster this tally by launching its first European Ucits funds via the migration of two existing vehicles from the Cayman Islands to Luxembourg before the end of the year.

Gerald Lee, chief executive and founder of Fullerton, believes the move is essential to crack the European market, which currently accounts for just 5 per cent of its customer base.

“We have funds registered in Singapore as well as in the Cayman Islands but there’s just no way we can penetrate the [European] market, if the fund structure is not right. We realise that if we don’t put funds on a Ucits platform we can be marketing here every day, but we won’t get a single cent.”

Fullerton’s initial offerings will reflect its expertise in Asian securities, but with an interesting twist. One fund, Fullerton Asian Equities, is a straightforward relative return product. But the other, Fullerton Absolute Return Asian Equities, is a market timing vehicle which allows the manager significant freedom to switch between equities and cash in anticipation of market rallies and slumps.

Mr Lee is adamant that his managers are able to time the markets in this manner, in spite of the fact that many of the world’s most successful equity managers say such timing abilities are beyond them.

“The whole idea is to take away enslavement to the index. We discover that the moment you do that, actually equity managers do have a very great sense of market timing, contrary to popular belief,” says Mr Lee, who was head of fixed income sales at SBC Warburg Singapore and deputy chief investment officer at Deutsche Asset Management Singapore prior to joining Temasek in 1999.

“I come from a fixed income background, I spent my years in a business as a fixed income manager, so I always found it very perplexing that equity managers claim that they don’t know how to time the market.

“Here I was trading bonds and managing bond portfolios knowing that, actually, it’s not a very difficult call. You don’t need to be somebody with high IQ, you just need to have a very good sense of what is happening.

“You always know when the market is overbought and you know when the market is oversold. Equity managers are capable of market timing and we want to put that to good use.”

Even armed with this information, picking turning points is notoriously hard. During the latter stages of the 1990s bull market, many managers were all too aware that a host of technology, media and telecoms stocks were wildly overvalued, but those managers brave enough to exit these sectors suffered as the TMT bubble continued to inflate, and in many cases lost their jobs as a result.

Mr Lee is aware of the difficulties, but believes the answer is to mandate absolute return managers to beat deposit rates by 5 to 7 percentage points a year over the cycle.

They are likely to exceed this in a bull market, even if they have not participated fully in the rally, giving them the freedom to bail out without being fearful as to their future employment prospects.

“The absolute return guy actually knows how to take money away from the table when things are overheated,” argues Mr Lee. “Where he really adds value is when the market starts falling apart and he has everything very nicely in cash.”

According to Mr Lee, Fullerton first trialled market timing with some of its equity managers five years ago, and the experience has been “very pleasant”.

However, the experience of the Fullerton Absolute Return Asian Equities fund since launch in 2007 has been somewhat less pleasant. During 2008 it lost 37 per cent, against a 52 per cent drop in its underlying Asia ex-Japan index.

Mr Lee largely blames investors for this state of affairs arguing that, with the fund launched during a bull market, investors were unwilling to accept Fullerton’s recommendation that the “neutral” equity weighting should have been 30-50 per cent and instead insisted neutral should be 70 per cent.

“They wanted to have their cake and eat it,” he says.

Fullerton also has plans to go after US investors, but these are unlikely to be firmed up until next year at the earliest, when it is able to start learning some of the lessons from its European push.

In spite of the imminent migration of two of Fullerton’s vehicles from the Caymans, Mr Lee is reluctant to sound the death knell for the Caribbean offshore financial centre, which some see as a potential loser from moves by the US and Europe to stem tax avoidance and tighten regulation of the financial system.

“There is a critical mass of excellence in the Caymans, in terms of people knowing the legal and administrative aspect, so I think they continue to have the advantage,” he says.

Yet, following budget changes in February which improved the tax treatment of funds in Fullerton’s home market, Mr Lee adds: “I can see that more and more hedge funds domiciled in Singapore may not find it necessary to incorporate their funds in Cayman as before.”

Further change may be afoot for Fullerton, however. Last month, Temasek said it would be prepared to list some of its biggest holdings, such as port operator PSA and Singapore Power, adding that even Fullerton itself could be suited to a float.

http://www.ft.com/cms/s/0/42d49b3c-9979-11de-ab8c-00144feabdc0.html?nclick_check=1

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Goodyear will not be Temasek's next CEO

Singapore government investment fund Temasek said Charles W. Goodyear won’t take over as chief executive because of differences in strategy, a surprising reversal that leaves the wife of the prime minister in the company’s top job.

Goodyear, who had been working alongside outgoing chief executive Ho Ching since March, will leave the sovereign wealth fund next month, Temasek said in a statement Tuesday.

Temasek in February named Goodyear, a former chief executive of the world’s No. 1 mining company BHP Billiton, to take over on October 1 from Ho. The wife of prime minister Lee Hsien Loong had headed Temasek since 2004 and announced her resignation days before the fund said it lost $39 billion, or 31 percent of its assets, between March and November last year.

In tightly controlled Singapore, the appointment of Goodyear, an American, had been seen as a sign that the government was loosening its grip and acknowledging the need for specific expertise from abroad. Now just five months later, that experiment appears to have been derailed.

“It’s embarrassing for sure,” said David Cohen, an economist with consultancy Action Economics in Singapore. “This isn’t the way they normally operate here. Professionalism has been the rule.”

Temasek said the decision to part ways was in its and Goodyear’s interests.

“The Temasek Board and Mr. Goodyear have concluded and accepted that there are differences regarding certain strategic issues that could not be resolved,” the fund said in a statement.

Making the move even more unusual was the long vetting process Goodyear went through before accepting the job.

Goodyear, who has a masters of business administration from the Wharton School of Finance, University of Pennsylvania, said in February he had been in talks with Temasek for the previous 15 months.

“Surprising is the word,” Cohen said. “He was about to command a substantial portfolio. You wouldn’t think he’d walk away from that very easily.”

Temasek’s investments were worth $84 billion as of Nov. 30.

Ho, who has a master’s degree in electrical engineering from Stanford University, said in February she would step away from the day-to-day operations of the fund.

“Chip brings capabilities that I don’t have,” Ho said at the time. “I don’t see myself as needing to direct it (Temasek) in any way.”

Singapore’s Ministry of Finance is Temasek’s only shareholder. The company, which is smaller than the city-state’s other sovereign wealth fund, the Government of Singapore Investment Corp., owns large stakes in many of the country’s biggest companies, including Singapore Telecommunications and Singapore Airlines.

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Ex-Lehman, GIC Managers Fuel Asia Hedge-Fund Industry Renewal

June 12 (Bloomberg) — Former Lehman Brothers Holdings Inc. and Government of Singapore Investment Corp. traders are among an estimated 32 hedge-fund startups in Asia that are offering strategies beyond equities, after a record 180 funds closed in the region during last year’s global markets rout.

About 65 percent of hedge funds in Asia trade only equities, compared with a global average of 44 percent, data compiled by Singapore-based GFIA Pte and Eurekahedge Pte show. As a result, Asia’s managers underperformed their peers from Europe and the U.S. after the MSCI Asia-Pacific Index fell 43 percent in 2008, the biggest drop in its two-decade history. The U.S. benchmark Standard & Poor’s 500 Index declined 38.5 percent last year.

Mark Ong, the former head of global credit at GIC, manager of Singapore’s foreign reserves, is starting a hedge fund to exploit price discrepancies in the credit and equity markets. Paul Penkett and Stephen Cheng, former Lehman traders, started a fund in Hong Kong to trade everything from stocks to currencies.

“Having a diverse choice of strategies should help the Asian industry perform better than the market,” said Stefano Pizzo, managing director of Geneva-based Unigestion Holding SA, which invests in hedge funds. “It should also attract more investors.”

An index tracking Asia-focused long-short equity funds fell 22 percent in 2008, Eurekahedge reported. That compared with the 19 percent decline of the average hedge fund, according to Chicago-based Hedge Fund Research Inc.

‘Renewal Phase’

“This will be a renewal phase for the industry after the massive destruction last year,” said Melvyn Teo, a director at the BNP Paribas Hedge Fund Center at Singapore Management University. “Raising money is going to be tough though, despite the uptrend in the market.”

There were 17 new Asian hedge funds that started in the first five months of 2009 and another 15 may be set up, said Peter Douglas, a principal at industry consulting firm GFIA. The number of startups slowed to 17 in the second half of 2008 from 26 in the first half, Eurekahedge reported.

“Conservatively, we will see a net increase in the number of Asian hedge funds” through 2010, Douglas said.

The region’s hedge fund industry has been more focused on equities because most managers that emerged about a decade ago from the Asian financial crisis, which followed the July 1997 devaluation of the Thai baht, came from investment firms that bet on rising stock prices, a strategy known as long-only, Douglas said.

The number of new managers in Asia fell 26 percent to 43 last year from 58 in 2007, Eurekahedge said. There were only five startups in the fourth quarter, after last September’s collapse of Lehman froze credit markets. About 180 hedge funds shut in 2008 in the region.

‘Shakeout’

“With the shakeout in the last two quarters of 2008, a lot of hedge fund managers who weren’t so skilled left the industry,” said Han Ming Ho, who heads the funds practice group in Singapore at law firm Clifford Chance LLP. “We’ve really seen a much stronger profile of startup managers come to our doors.”

There may be more startups next year than in 2009 as capital-raising opportunities improve, Ho said. Managers plan to introduce so-called macro funds that seek to profit from broad economic trends and funds that invest in so-called distressed assets, he said.

“I haven’t stopped talking to startups since the beginning of the year,” said Ho, who helped open at least two hedge funds in the first quarter.

Macro Funds

Macro funds will likely be the best-performing strategy this year, a Deutsche Bank AG survey published in March said. About 47 percent of 1,000 investors surveyed in February by Germany’s largest bank said they plan to add allocations to macro funds this year, more than double the 21 percent in 2008. About 41 percent of the investors plan to add bets to distressed funds, according to the survey.

Andrew Gale, a former London-based executive at Dexion Capital Plc who started a macro fund on June 1, said investors are seeking returns that are uncorrelated with market swings.

“People are looking for strategies that are more skill- based than beta driven,” he said.

Gale co-founded Cavenagh Capital in Singapore with Lee Ka Shao, a former managing director of DBS Holdings Ltd.’s Central Treasury Unit. Lee produced returns that averaged 38 percent a year for the Singapore-based bank’s principal strategies business from 2001 to 2007.

Anurag Das, a former managing director at New York-based King Street Capital Management LLC, set up Rain Tree Capital Management in Singapore to start a distressed, event-driven and special situations fund.

Ong, who was a managing director at Merrill Lynch & Co.’s principal investing unit in Singapore, declined to give details on his capital structure fund at Barker Investment Management. Former Lehman Brothers traders Penkett and Cheng opened Omnix Capital Ltd. and started an Asia-focused multistrategy fund in May, Cheng said.

From Bloomberg

Jean Viry-Babel
senior partner
VBK partners

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