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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New Asia-focused team at FrontPoint

FrontPoint Partners hired a new Asia-focused event-driven and special situations hedge fund investment team, led by portfolio manager John Foo.

The Singapore-based team all came from Kingsmead Capital Advisors, which Mr. Foo founded.

Joining him is Edgar Chia, analyst, and Hubert Yong, trader; they held similar positions at Kingsmead Capital, according to a FrontPoint news release.

Kingsmead Capital liquidated its similarly managed Asian hedge fund in July 2008, said Erica Platt, a spokeswoman for FrontPoint’s parent, Morgan Stanley Investment Management.

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Hong Kong based hedge fund Tarascon hires new COO from Singapore

From Asian Investor, news of Roger Lee, the previous head of Nikko Asset Management’s Singapore office, who has joined Tarascon Capital, a Hong Kong-based hedge fund.

Tarascon was established in March 2007 by Jonathan Iu, its CIO, to manage an Asia-Pacific equity long/short strategy, with Morgan Stanley as its prime broker. The fund was a rare success story in 2008, gaining 7% when most other long/short strategies in the region were losing money.

Tarascon now manages around $30 million on behalf of individuals and US-based funds of funds. Iu is keen to build on last year’s success but realised the need to augment his small team of three, which includes a head of research and an operations and administration specialist.

Hence the decision to hire Lee as a managing partner. Lee will serve in Hong Kong as COO and run the business on a day-to-day basis, as well as handle client servicing and marketing. “Investors are looking again at hedge funds,” Iu says. “Capital raising is still difficult, but we want to approach more funds of funds and institutional investors. We felt we needed an experienced COO to enhance our appeal to such investors.”

Lee has 16 years in the funds industry. Prior to Nikko AM, where he handled business development for Asia ex-Japan, he worked at a number of other investment firms. These include SBC Brinson/UBS Asset Management, Dresdner Private Banking,  Allianz Asset Management and Columbia Management, the funds arm of Bank of America.

Following Lee’s departure from Nikko Asset Management, the firm has appointed Ng Soo-nam to run the Singapore business.

The Asian Investor

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Nomura plans global prime broking business to serve Hedge Fund

Japan’s Nomura Holdings  plans to launch a global prime brokerage business by September as the financial crisis has created room for new players to serve hedge funds, a senior executive said on Monday.

“We think prime brokerage is a very interesting opportunity because of what happened in the industry this past year,” Siggi Thorkelsson, Nomura’s head of equities Asia-Pacific, told Reuters in an interview.

Prime brokerages offer services such as clearing, securities lending and financing for assets to hedge funds. Banks such as Goldman Sachs  and Morgan Stanley have historically dominated the business.

Thorkelsson said Nomura historically has not been present in the prime broking space.

“It used to the case that the barriers to entry were very high as there were a couple of firms that dominated the market. Now those firms have lost a lot of the market share and there’s market share to be gained there,” he said.

The hedge fund industry suffered record redemptions last year, fuelled by weak performance exacerbated by a meltdown in financial markets last fall.

“The tide seems to have turned there. There are have been a number of firms that have done extremely well and those hedge funds will be the biggest beneficiaries of a less crowded market place in the coming years,” Thorkelsson said.

Nomura, which took over the European, Middle Eastern and Asian units of bankrupt Lehman Brothers, is also looking to increase its market share in Asia in electronic trading, derivatives and convertible securities.

“Our ambition for Asia is to be in the top three to five in terms market share and we are not there yet,” Thorkelsson said, adding the firm is in the top 10.

Currently Asia excluding Japan accounts for 30 percent of its Asia-Pacific equities business and the firm plans to grow that share to 50 percent in one and half years, he said. He did not provide figures.

“Most important markets for us in the medium-to-long term are China and India and in the immediate term, Hong Kong and Singapore are the main areas of focus.”

With Reuters

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A new (and some old) rogue traders

PVM Oil Futures Limited said on Friday Steve Perkins, a senior broker based at the firm’s London office, was responsible for unauthorized Brent crude futures trades which landed the firm with a loss of nearly $10 million.

The loss, however, was relatively small compared with other trading scandals in the past, often costing companies billions of dollars.

Following is a list of some of the major financial market trading scandals in a chronological order.

May 2009 – A former Morgan Stanley trader, who built up a hefty unauthorized oil futures position after a long liquid lunch and then hid the deals overnight, earned a ban from Britain’s financial watchdog.

The Financial Services Authority (FSA) said in May David Connor Redmond was a freight and oil trader with Morgan Stanley when he took a lunch break of more than three hours on February 6, 2008. The size of the loss was not disclosed.

January 2008 – French bank Societe Generale said unauthorized trade by a single dealer had caused it a 4.9 billion euro ($6.87 billion) loss. The loss caused by Jerome Kerviel, then a junior trader with the bank, resulted in the resignation of chairman Daniel Bouton.

Kerviel was freed from prison in March 2008.

November 2006 – Mitsui & Co, Japan’s second-biggest trading house, shut Mitsui Oil Asia (MOA) after the Singapore office racked up losses amounting to $81 million in naphtha trading up to November 17, 2006.

Noiyuki Yamazaki, who made false accounting entries, was sentenced in 2009 to five years in jail.

March/April 2006 – Hedge fund Amaranth Advisors LLC and its former head trader, Brian Hunter, made up to $6.4 billion in losses from natural gas contracts before it folded in 2006.

In July 2007 the Commodity Futures Trading Commission sued Amaranth and Brian Hunter, alleging that they tried to manipulate natural gas futures prices.

June 1996 – Japan’s trading house Sumitomo Corp suffered a $2.6 billion loss over 10 years from unauthorized copper trades, primarily by chief copper trader Yasuo Hamanaka.

Sumitomo fired Hamanaka, once dubbed “Mr Five Percent” because his trading team was believed to control five percent of the world’s copper trading. He was jailed for eight years.

September 1995 – Japan’s Daiwa Bank suffered a $1.1 billion loss from unauthorized bond trading by Toshihide Iguchi, one of its executives in the United States. He was imprisoned in 1996.

February 1995 – One of Britain’s oldest investment banks, Barings Plc, collapsed after lone futures trader in Singapore, Nick Leeson, lost some $1.4 billion in derivatives trading. Leeson was jailed in Singapore. Barings was sold to Dutch bank ING for one pound.

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big potential in Asia debt: Hedge Fund to cash in…

NEW YORK (Reuters) – As hard-hit Western banks and hedge funds scramble to sell their Asian loans and bonds, one newcomer expects to pick up these choice assets at rarely seen discounts.

Opvs Group is launching two Asia-focused credit funds designed to benefit from the region’s underlying growth potential by acquiring debt at prices depressed by the global financial crisis.

That’s a classic opportunity, said Barry Dick, who left Merrill Lynch last year as its Asia head of debt products distribution and co-founded Opvs.

“Asia has been sold off in line with the rest of the world. It really looks like a case of the baby thrown out with the bathwater,” Dick said in an interview.

Dick founded the Singapore-based firm with three other Asia veterans: Chris Francis, who ran Asian credit and later equities research at Merrill; Sandeep Gill, former global credit derivatives head at DBS Group Holdings Ltd; and Tommy Kim, co-founder of Singapore-based HFG Investments Pte.

This team spent the past year building a 25-person firm that will be dedicated to the region and, for now, one asset class.

“There are a lot of boutique operations in the region — five guys in a garage and a prime broker — but we wanted to build a large asset management company, the best in Asia, with very specialized investment teams.”

Opvs is rolling out two funds in the coming month.

First will be the Opus Asia Opportunity Fund, which will snap up loans from closely held, high-growth companies in a region reaching from China, Japan and Southeast Asia to India and Australia.

It has been seeded with $50 million and will complete its first round of fund-raising on Tuesday, but will continue adding money through the fall.

The fund will hold these credits until maturity, with proceeds paid out as distributions after one year and then every six months until all the loans mature.

Later next month Opvs will launch Fundamental Asia Credit Fund with $50 million initially and growing to a maximum $300 million. The fund will invest in highly liquid and publicly traded bonds and short bonds through the swaps market.

In a sign of the times, both funds will provide shareholders with Internet access to their portfolio holdings.

In contrast to just a year or two ago, when Asia was a top priority for every Western bank and fund manager, the fast growing region has become a lot less crowded. These same investors have been forced to shed portfolio holdings and often turn first to their Asian assets.

The potential returns on these investments are high, Opvs says, because loans extended by big banks like Merrill, Goldman Sachs and Morgan Stanley during the boom years of 2005 through 2007 are now being sold off at fire-sale prices.

In recent months, emerging markets funds have become a hot item in the hedge fund community. Still, for the relative few prepared to step in today, what was a sellers’ market quickly has became bargain city.

“There’s been a big shakeout since the credit crunch,” Francis said. “That’s left us in a situation where there is an excess of sellers of credit, or people holding credit, but not a lot of people who have balance sheets to take up that capacity.”

Jean Viry-Babel
senior partner
VBK partners

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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.


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.


Jean Viry-Babel
senior partner
VBK partners

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