Monetary Authority of Singapore Tries To Sue Pheim

Morningstar ranked Pheim ASEAN Emerging Companies Growth Fund ranked No. 1 for the 1-year, 3-year, 7-year, 10-year and 14-year periods for the Morningstar Category ASEAN Equity Funds as at June 2009.

First, let me say that I like CK Tan a lot, I think he is quite a brilliant fund manager. Besides being an outstanding long term outperformer, I also absolute share his view on the local market, this was uttered by Tan some 13 years ago: Pheim Asset Management CEO Tan Chong Koay believes that a buy-and-hold strategy is not appropriate for Malaysia's volatile market. Tan states that investors need to bet on the sharp swings of the market if they are to succeed in Malaysia.

It is being closely watched in the investment community, as Tan is well-known in fund management circles. Also, the case touches on the practice of “window-dressing” where big investors may try to ramp up or push down share prices — a key concern at the year-end when the value of a fund is determined.

Pheim Malaysia's case is it had already invested in the company when it was floated on the stock exchange earlier in the year. Its investment committee was keen to buy more United Envirotech shares, on the back of its success in investing in Hyflux. There were three funds in question — but under Malaysian rules, each fund could not hold more than 10 per cent of foreign (non-Malaysian) stocks. So it was only after these three funds had sold off some Singapore stocks on Dec 28, that the firm was able to buy into United Envirotech. Pheim Malaysia argues that it was a genuine investor, believing the shares were undervalued in 2004.

My views in brackets.

UET shares are the subject of a High Court lawsuit. The Monetary Authority of Singapore is suing Tan Chong Koay and his Malaysian fund Pheim Asset Management for alleged false trading in UET shares in December 2004.

Justice Lai Siu Chiu heard evidence yesterday from former UOB Kay Hian broker Tang Boon Siah, who said he received 'discretion' orders from Pheim Malaysia to buy about $100,000 of UET shares on Dec 29, 30 and 31, 2004 and filled these orders slowly, and mostly at the end of each trading day, because the stock was illiquid.

Examined by Pheim's lawyer Foo Maw Shen of Rodyk & Davidson, Mr Tang said he mostly lifted offers from the sell queue and waited as long as he could between trades so prospective sellers might appear. Even then he was unable to completely fill the order, but the price changes on each trading day did not exceed 20 per cent, he said. (Filling an illiquid order is a very difficult task, the broker did the right stuff, waited till end of the day before taking out the sellers queue, and he also ensured that it did not exceed 20% price movement daily. (Nothing sinister here).

Mr Tang said he kept in frequent telephone contact with Mr Tan on Dec 30 and 31, 2004 to update the latter on the status of the market. Mr Tan is represented in the case by Senior Counsel Michael Hwang. MAS, represented by Senior Counsel Cavinder Bull of Drew & Napier, alleges Mr Tan and Pheim created a false market in UET shares by their purchases, especially when timed so close to the end of the year. The purchases were also made mostly at the end of each trading day. (Mr. Bull is obviously deluded as to why shares had to be done mainly at the end of the day, this is to prevent other speculative buyers jumping in thus driving the shares up even more. By definition, a false market is WHEN YOU LITERALLY CONTROLS THE BUYERS SIDE AND THE SELLERS SIDE - if Phiem really did try to create a false market, then by all means the genuine sellers would dump their shares when the share price moved up day by day, Pheim was not selling).

The purchases caused the share price to close significantly higher and created a false and misleading appearance in the market, Mr Bull argued. This contravened Section 197(1)(b) of the Securities and Futures Act, he said. (OMG, MAS and Mr. Bull, why bother with this frivolous and naive lawsuit even. It was not a one day affair, it was spread out over 3 days. Did it amount to trying to close the share price at a certain level, or was it due to a genuine attempt to buy more shares).

Mr Tan and Pheim deny the accusations, saying the purchases were legitimate commercial transactions. Former HSBC Securities managing director Christopher Chong is expected to take the stand as an MAS expert witness on Monday when the hearing resumes. The defendants have called Nels Radley Friets - chairman of the Singapore Exchange and Catalist disciplinary committees, but appearing in his private capacity as their expert witness.

Aug. 28 (Bloomberg) -- Singapore’s central bank sued Pheim Asset Management Pte Chief Executive Officer Tan Chong Koay and the fund manager’s Malaysian unit for manipulating the shares of a water treatment company.

Tan and Pheim Asset Management Sdn. bought almost 90 percent of the traded shares of Singapore-based UET from Dec. 29 to Dec. 31, 2004, according to a statement presented to Singapore’s High Court by the Monetary Authority of Singapore's lawyers Drew & Napier LLC yesterday.

That created a “false or misleading appearance” of the market and the company’s stock, Cavinder Bull, a lawyer with Drew & Napier, said in the statement. The share purchase raised the net asset value of Pheim’s accounts, triggering outperformance bonuses of S$50,790 ($35,218) and an additional management fee of S$115, lifting the reputation of the fund manager, Bull said in the statement. (This is so laughable. A performance bonus of nearly S$61,000. Can someone please clarify what is Tan's net worth in 2004? I mean, the "reasonable man" defense here would tear this to shreds).

Pheim and Tan wouldn’t have been motivated by the “insignificant” amounts, according to a court statement from their lawyers. They “had no intention to create a false or misleading appearance,” according to the statement. United Envirotech shares were undervalued and the purchases were “part of a legitimate and genuine investment strategy,” it said.

UET price movements during that period were “a reflection of genuine demand and supply,” and the stock was “illiquid” and “volatile,” according to the statement. Pheim bought the shares for 38.4 Singapore cents to 43.9 Singapore cents each in December 2004. The shares climbed 17 percent from Dec. 29 to Dec. 31 that year.

“This was not the conduct of a genuine buyer seeking to buy shares at the lowest possible price,” the central bank said in its court filing. “Such a genuine buyer would have spread out the purchases of a thinly traded stock in order to avoid spikes in the prices.” (Not necessarily as the record should show that even as prices went higher with each progressive day, there were no excited sellers of the shares or else Pheim would have had the opportunity to buy a lot more shares. It was obvious that the shares were tightly held. MAS might as well GO AND SUE THE SHAREHOLDERS OF UTC WHO DID NOT SELL THEIR SHARES when Pheim started to buy the shares aggressively, does the fact that they did not sell to an irrational share price rise amount to stupidity or an act to collude with Pheim to allow the share prices to go even higher??).

Tan will call Nels Friets, chairman of the disciplinary committee of Catalist, the small-caps board of the SGX, as an expert witness in his defense. The central bank has called Christopher Chong, former managing director of HSBC Securities Pte, as its expert witness. Tan couldn’t immediately be reached for comment. The central bank declined to comment on on-going legal proceedings. Tan and Pheim may be fined between S$50,000 and S$2 million if found guilty, according to the court filing.

Pheim, founded by Tan in 1994, manages more than US$1 billion and counts the GIC and Malaysia’s Employee Provident Fund among its clients, according to its Web site. Tan, who has offices in Singapore and Malaysia, once jokingly said that Pheim was a made-up word which means Please Help Everyone Invest Money.

The case is Monetary Authority of Singapore and Tan Chong Koay, Pheim Asset Management Sdn Bhd., 658/2008/P in the Singapore High Court.

MAS should have a lot more things on their plate than to go for somebody like Pheim. Such a waste of resources and time.

p/s photos: Eri Otoguro

Gov Of Singapore Investment Corp's State Of Affairs

Investors and the general public whacked Temasek and GIC royally over their portfolio losses over the past 12 months. Please search and distinguish between GIC and Temasek (you can get previous postings on that by keying in Temasek or GIC on this site's search button above). I was very severe on Temasek, and rightly so, they performed well when the wind is beneath their wings, and they made rather exceptional sector bets. For all the good brains and minds money can buy, not ONE was able to predict the banking crisis, the property loans debacle, the excessive credit card debt phenomenon, etc... That indicated to me that they just read analyst reports with no desire to walk the data (the need to go to the ground, talk to the participants and see how things were done). All they needed to do was talk to some of those new borrowers, check with ratings agencies on how they rated the papers, how did the papers got their triple A rating, etc. If you are going to invest $1bn into IOI Corp, you should not only talk to management, but walk around the plantations, see how they actually managed them, how the staff behaved, what they do to stop pilferage, how do they hedge their positions, how do they do their forward sales, how they go upstream and downstream, talk to a few of their major suppliers and clients, etc... Temasek and to a certain extent GIC, did not do the dirty work.

Again, Temasek hastily sold its Bank of America stake recently, and the share price has almost doubled what they sold at within weeks. At least GIC had the good sense to ride out bad decisions. If anything, one should be looking to buy now, not sell. Yes, they should NOT have bought before, thats too late to rectify, now they should be looking at their prospects moving forward. Unless Temasek really thinks that Bank of America has a greater chance of going to $4.00 than $25.00 over the next 2-3 years, then sell... what Temasek is doing to cutting off both limbs to get rid of an ugly mole.

Anyway, here is a more tolerant view on GIC and how they do things a lot better than Temasek. Take note of the personalities behind these two vehicles to understand the nuances in management and genuine ability.


The Government of Singapore Investment Corporation (GIC) says it will maintain its investments in Citigroup and UBS, despite the gloomy outlook for Western financial institutions.

This comes days after news that Temasek Holdings had sold its stake in Bank of America (BOA), resulting in an estimated loss of several billion dollars.

GIC currently has an 11 per cent stake in Citigroup, while its stake in UBS amounts to about nine per cent.

Observers say UBS and Citigroup have significant holdings in Asia and other high growth regions, which could recover more quickly from the downturn. And this could benefit GIC in the long term.

Arjuna Mahendran, Head of Asia Investment Strategy, HSBC, said: "By investing in these two very large investment banks, an investor who has a strategic holding in the equity of those banks would perhaps have access to the deal flow that emanates from their investment banking operations. And that is a huge positive if you are running a large sovereign wealth fund."

• GIC manages well over $100b from country's forex reserves and fiscal surplus - estimates of its assets under management range from $140- $300 bn. A plausible estimate is $220b in mid 2008
  
• Lee Kuan Yew suggested that GIC's assets had fallen by 25% from the peak and GIC invested too early in Citi and global banks. It's equity allocation has fallen to 45-50%. Other estimates suggest it lost $33b in 2008. It started to possess 7% more of cash in mid-2007
• A 25% losses would actually mean it outperformed global equity and had losses perhaps slightly less than other SWFs with similar portfolios
• Returns: It has averaged annual returns of 7.8% for last 20 years (slightly above the benchmark MSCI global with 7% returns) with Asian crisis, tech bust and credit crisis depressing returns in recent years. Average annual return in 25 years ending in 2006 was 9.5%
• Investment approach: Primarily a portfolio investor but has taken some larger stakes more recently including $6.9 b in Citigroup, Plans to increase investment in UBS in spite of losses on $10 b investment made in Jan-08; invested $1.5b in Sintonia and several property joint ventures in Europe and Asia. It is also rumored to be the lead investor in a new TPG fund. About one-third of the assets are managed by external managers, with two-thirds managed internally
  
• Investments in the U.S., EU and Japan still make up 80% of its portfolio, despite increase in exposure to Emerging markets. Equity share fell to 44% of its portfolio from about half two years ago, investments in alternative assets such as private equity and real estate rose to 23% from 20%. Cash made up 7% as of March.
• The shift to cash early in credit crisis meant it had cash on hand to invest in UBS.
• Regional: The Americas made up 40% (34% U.S.) of its assets, down from as much as 45% two years ago. Investments in Europe rose to 35% from 25%. Asia now accounts for 23% of its investments, with Japan making up almost half of them
  
• GIC: Uncertain global economic growth and financial market prospects and falling global liquidity make high returns challenging. Plans to increase investment in emerging markets via private equity funds to avoid political backlash
• Based on Singapore's balance of payment and international investment position AUM of around $220b seems plausible
• GIC along with ADIA recently agreed on code of conduct for SWF with U.S. and was a key player in IMF code of conduct: SWF decisions should be based solely on commercial grounds rather than geopolitical goals; More disclosure of strategies would reduce uncertainty and build trust; Recipient countries should have predictable, proportionate investment frameworks not protectionist barriers, nor should they seek to direct SWF investment.

p/s photo: Cherrie Ying Choi Yee

Temasek & GIC Singapore - "Cain & Abel", "Donny & Marie" or.. ?

Temasek has been hogging the headlines for the past few weeks, and seems not to be shying away from the over-exposure. First, the situation with the purchase of Thailand's Shin Corp, and before the dust even settles, Temasek announced the purchase of the much sought after 11.55% stake in Standard Chartered from the Khoo family. So what's with Temasek, and how come GIC is so laidback compared to Temasek? Ask every person in Singapore, and probably 9 out of 10 could not tell you the difference between Temasek and GIC - saying that the PM's wife (Ho Ching) runs Temasek does not count, OK! Even the rural PAS members in Kelantan know that!

Temasek is the investment arm of the Singapore government. Initially important stakes were held by Ministry of Finance (in various sectors such as shipbuilding and manufacturing). Temasek is owned by one shareholder, Singapore's Ministry of Finance. The Government of Singapore Investment Corp (GIC) invests only the government foreign reserves. Hence GIC does not have a history of building up GLCs (government linked companies) like Temasek does. So naturally, Temasek is more powerful, owing to the stable of important GLCs in its grasp. However, the big difference is that GIC acts more like a proper portfolio manager, with proper allocations into real estate, currencies, commodities and bonds while Temasek seemingly answers to no one and engages in accumulation of strategic companies.

Temasek basically rides on its hold on big and important GLCs such as Singapore Telecom, DBS Bank (involved in the recent failed bid for Korea Exchange Bank), Singapore Airlines, PSA (involved recently in the failed bid for Dubai Ports), Singapore Power, Neptune Orient Lines, etc.. Plus it also owns my favourite place in Singapore, the Zoological gardens and holds a stake in Singapore Pools, the only legal betting company in Singapore. Though more than half of Temasek's holdings are in Singapore, eventually they want to see only one-third of that in Singapore. Hence the strong investment drive to go international.

Temasek is like a fully cloaked woman, mysterious... mainly because it need not report its financials publicly. However, to satisfy the legal requirements in issuing bonds to raise money from the public, it disclosed its financials in October 2004. For year ended March 2004, it reported a net profit of S$7.4 billion on revenues of S$56.5 billion. The 2004 report stated that Temasek managed S$900 billion (US$565 billion). Standards & Poor assigned Temasek with a AAA rating.

As for GIC, it was established in 1981 to manage the country's foreign reserves. They now have 6 offices worldwide. Its assets under management is dwarfed by Temasek, holding just slightly above US$100 billion. GIC acts more like a professional investing outfit and has a very long established relationship with the magnificent investment firm, the Capital Group. The Capital Group has a remarkable track record, beating S&P 500 for each of the past 30 years in each of its 6 funds.Now the Capital Group has more than US$750 billion under management. GIC places a lot of its funds under Capital Group's management, emphasised by the fact that GIC is Capital Group's biggest single client.

After PSA's failed tussle with Dubai Ports for P&O, GIC has just stepped in with Goldman Sachs and Borealis (Canada) to launch a takeover bid for Associated British Ports for S$5.6 billion (US$3.5 billion).

There is no doubt that there is a difference in perception with regards to Temasek and GIC. GIC is viewed as a very professional portfolio manager, quiet achiever... and somehow Temasek seems to be secretive and professionally ruffling more feathers wherever it goes. It may be that Temasek is a bit too arrogant in its dealings, not taking care and time to appreciate the nuances of investing in certain companies. It may also be that the stakes Temasek has been acquiring are more strategic in nature (than GIC's more prudent value/risk/return investment process). When I say strategic, it could mean having significant exposure to the banking and telco sector of developing Asian countries, etc... Still, Temasek could do with a bit better PR, the secrecy and "not-granting-of-interviews" just adds to the fear and and unknown side of things every time Temasek steps into a country to invests. The people of that country just don't know what Temasek stands for, is it an economic conquering ship, what will their strategy be, why are foreign interests controlling important assets, etc...? When no information is available, Temasek becomes an easy target for niche groups to use Temasek as a punching bag for their own causes.

Could Have Been Better

1) Temasek could have handled the Shin Corp deal a lot better. Temasek failed to recognise the sensitivity of Thai people, the potential backlash on Thaksin, the growing tide of resentment against Thaksin - it spells of arrogance by Temasek. Instead of doing a majority sale deal, could have broken it up in 2 or 3 tranches to assuage fears. Say 20% now and another 20% 12 months later if Shin Corp meets some targets, and the balance 2 years down the road. Plus it would have given more time to find a new owner for the stake in Thai AirAsia, instead of being seen as scrambling to find a new buyer right after the deal. Since Shin Corp became a foreign controlled entity, it no longer can own the controlling stake in Thai AirAsia. Now the stake was sold (finally) to Asia Aviation. It appeared that Temasek did not realise the contravention till after the deal has been sealed. Some knuckles needed to be rapped here.

2) The visibility issue is too threatening. People not from Singapore do not differentiate between Temasek and GIC, or the GLCs of Singapore for that matter. Even though you argue till the cows come home, authorities will still regard the whole grouping as one. Hence the visibility issue, the rapid flow of deals - just makes other people nervous every time GIC or Temasek or some Singapore GLC announces a takeover deal. Having the money is one thing, being seen as "new economic lords" taking over important assets of respective countries is an issue that needs addressing. Just because Temasek is satisfied with its own investment policies and transparency issues does not mean the deals will be well received. Especially when deals are occuring within the Asian backyard. Time to be the good neighbour.

For instance, these are the big deals in recent months. Just imagine youself as a person living in an Asian country other than Singapore, how would the rapid succession of these" deal flows / failed deals" affect you, or are you unaffected by them?
- PSA tussles with Dubai Ports to buy P&O for 2 billion pounds.
- Temasek purchasing a 5% stake in Bank of China for US$1.5 billion
- Temasek purchasing a 5% stake in China Minsheng Bank
- Temasek purchasing a 5.1% stake in China Construction Bank
- GIC bidding for Associated British Ports
- The Reserve Bank of India rebuffing Temasek from raising its stake in ICIC Bank (India's largest private sector bank) because the central bank viewsTemasek and GIC as related entities, and both companies cannot collectively own more than 10% of ICIC Bank
- GIC buys the Oakwood Appartments in Roppongi, Japan. The latest addition after purchasing Oakwood Akasaka, Oakwood Aoyama and Oakwood Shirokane. GIC also owns the Shidome City Center, Shinagawa Seaside Towers and Kawasaki Tech Centre. GIC also has a US$1 billion investment in ProLogis Properties which invests in high quality logistics facilities in Japan
- GIC bought the Intercontinental Hotel in Paris for 315 million pounds. GIC also bought the prime Chifley Tower and Chifley Plaza in Sydney, and the Royal Pines Resort in Gold Coast, Australia
- GIC is a key investor in China International Capital Corp (CICC), China's first joint venture investment bank
- Temasek buying Shin Corp from Thaksin's family
- SingTel buying 32% of India's Bharti Telecom (India's second largest mobile operator)
- SingTel buying 45% of Pacific Bangladesh Telecom for US$118 million
- DBS Bank failed attempt to buy Korea Exchange Bank
- DBS Bank buying a 37% stake in Indian financial firm Cholamandalam
- Temasek buying an 11.5% stake in Standard Chartered Bank
- Temasek putting in a bid together with Blackstone Capital (Merrill Lynch now) and the Carlyle Group for a strategic stake in Air Sahara
- Temasek's failed tussle with Taishi Financial to by a 22% stake in Taiwan's investment company Chang Hwa
- Temasek tripling its stake in Pakisatan NDLC-IFIC Bank
- Temasek buying a 30% stake in Vietnam's Pacific Airlines
- Temasek buying a strategic stake in India's Mahindra & Mahindra

Is it an envy problem, I think its more than that. Singapore may think of the twin terrors as "Donny & Marie" but to the rest its a bit like "Cain & Abel" but not quite. I think its closer to "Aykyrod & Belushi"! One is saner than the other but both are still dangerous...