Saturday, February 14, 2009

Our Reserves....Time for Reform...

So what does it take for the PAP to do the right thing? The $58B loss + an unspecified amount of losses in the GIC of taxpayers' money is an unmitigated disaster that has harmed Singaporeans tremendously. This is what happens when the check and balance in a system is taken out.

Here is an excellent article in the Asian WSJ journal that asks the questions that this blog has been asking and that every Singaporeans should be asking ....my comments in red.
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http://online.wsj.com/article/SB123436899991073375.html
Temasek and Transparency
Will a new CEO bring change amid tough markets?

Remember Ho Ching was suppose to bring change to Temasek? At that time, they said she will take 10 years to do it....looks like she is ahead of schedule leaving after 6 years.

Singapore's state-owned investment fund Temasek announced a change in leadership last week to a non-Singaporean CEO. We hope his appointment heralds a new era of openness. AP Charles "Chip" Goodyear. Temasek manages public monies, yet much of what it does is hidden from the public it aims to serve. Its stated mission is "to create and maximise long-term shareholder value as an active investor and shareholder of successful enterprises." But to what end? To support Singaporeans in times of recession, like now?

The excuse they used to give not to show Singaporeans was that there was sensitive information. Now that an American is hired as CEO what is there that cannot be shown to Singaporeans? To what end? Supporting Singaporeans? SM Goh said specifically it is not. Unlike the Norwegian reserves which is set aside for pensions, SM Goh said the reserves are used for economic crisis. Why then is so much of it invested asset classes that will be hit during crisis?

My opinion is the reserves are set up and managed in a way that will be beneficial to the elites who hold jobs in Temasek. The large size of the reserves can be used to justify high compensation and the secrecy means they can do so without accountability to the ordinary citizens.

Government officials in the past said they are accumulating reserves for an unspecified "rainy day." In a speech this month, Senior Minister Goh Chok Tong said reserves should be used only "under dire circumstances when one-off extraordinary measures are required to ward off catastrophe or prevent irreparable damage to the economy." A spokesman tells us that, "Temasek's charter is to manage these investments independent of the Singapore government on a purely commercial basis in order to generate sustainable returns for the benefit of future generations." But who decides when to use the reserves, and under what metrics? Temasek's murky goals are part and parcel of Singapore Inc., where the line between public and private firms is often blurred.

Future generations?....Its like "the tomorrow that never comes". They will tell the next generation it is for the next next generation...and the next next generation it is for the next next next generation and so on.

I suggest you read SM Goh's speech on the reserves very carefully [link]. Even a former PM with 30 years in govt can't articulate clearly what it is for. Managing $200B of taxpayer's money with murky goals is dangerous business. SM Goh said the reserves are for "rainy day" e.g. crisis yet according to Temasek mission statement it is "maximise shareholder value". These are 2 fundamentally different goals - where do you put your money that is meant for "rainy days" definitely not in equities!

It cannot be good govt to have this large pool of taxpayers money managed without transparency without clear goals and matrics. Singaporeans have been asking these questions for more than a decade long before the Shin Corp, Citigroup, ML, ABC Learning debacles. It is shameful they were ignored and it took such an unmitigated disaster for them to wake up (I'm not sure if they have?!!!). If this is the way our country is run, they will run it to the ground before they agree to beneficial changes that ordinary Singaporeans have been yearning for.

This corporatist approach worked for Singapore in its early years -- though of course we'll never know whether the market might have done a better job. Temasek was set up in 1974 as a holding company to manage state-owned firms and has nurtured successful, world-class companies such as Singapore Airlines and DBS Group, a major bank. The current CEO, Ho Ching, is the wife of Prime Minister Lee Hsien Loong. Today, however, Singapore needs to develop a more vibrant private sector that encourages entrepreneurship and innovation. The city-state is in the throes of the worst recession in its modern history, with GDP forecast to contract as much as 5% this year. Expatriates are fleeing and the government, for the first time, is going to tap its reserves to the tune of S$4.9 billion ($3.3 billion) to help fund a stimulus package. But if this is the "rainy day" Temasek is there for, why not give back the fund's piles of cash to taxpayers and let Singaporeans invest their own money? As of March 31 -- its last public annual statement -- Temasek's portfolio totaled S$185 billion. During the course of a parliamentary debate Tuesday, the government announced a 31% drop in the company's net portfolio value between March 31 and November 30 last year. The decline was not unexpected, given the world financial crisis and some poorly timed investments, including $5.8 billion in Merrill Lynch and £975 million ($2 billion) in Barclays. Temasek says it oversees its portfolio prudently. But it has never provided historical financials to back up its claim of an 18% compounded annual "total shareholder return" by "market value," nor has it released detailed results showing how money flows among its subsidiaries, the holding company and its government shareholder. Temasek outlines its compensation arrangements but doesn't say how much it pays its top executives. (it pays them very well lah!) Temasek is 100% government-owned and isn't required to release publicly audited financial statements. The President of Singapore must sign off on the "appointment or removal" of the CEO and board members, according to Temasek's annual report. It cannot "draw on or diminish our past reserves without the President's concurrence." So even while it is a "commercially disciplined investment firm," as the company says, Temasek still answers to the Singapore executive. This system would be more effective if Singapore boasted a more vibrant democracy with better checks and balances. All of which makes last week's change at the top of Temasek all the more intriguing, and an opportunity. Replacing Ms. Ho in October will be American Charles "Chip" Goodyear, who will be Temasek's first foreign CEO in its 35-year history. Mr. Goodyear is a Wall Street veteran -- not always a compliment these days -- and the former head of BHP Billiton, the world's largest mining firm. He has run firms accountable to their shareholders, and run them well. The hiring of a foreign CEO is a notable change, and we hope it's a signal that Temasek and Singapore's leaders understand the need for more transparency in the company's operations. The world is demanding more openness and accountability from sovereign-wealth funds, and the shareholder-voters of Singapore deserve nothing less.

Singaporeans remember this : You get what you vote for.

25 comments:

Anonymous said...

Many thinking S'poreans have expected this tragedy for a long time when disaster after disaster hit PAP's investment forays - SIP, $500 million dumped and gone in some nameless Silicon Valley company and Micropolis (harddisk manufacturing) that closed down and which probably ran into a $billion or two. That was about 15 years ago.

It is just the top PAP leadership that continues to be blinded by its own arrogance that it is so clever and professional in business. To me both GIC and Temasek are run by "kiddy" people like Lee Kuan Yew and Ho Ching.

This belief continued subsequently to be reinforced time and again by the crazy investment decisions made by GIC and Temasek not least the over S$40 billions dumped into troubled Western banks some time between Jun 2007 and Jan 2008.

That period was precisely when the financial bubble burst and at that point even ordinary investors have the common sense, the instinct to pull out of the stock market instead of dashing in especially into those banks.

I mean all these have been addressed here by Lucky in the past which shows that thinking Singaporeans like him were not surprised at all.

In fact they had been holding their breath for the big one to happen.

Right now I think may be 40% of GIC and Temasek value had been wiped out. Ultimately this comes from money borrowed from CPF Board and national reserves collected through taxes and levies.

So are our highly paid the top ministers and political secretaries going to just sit back and watch and see this nation go to the dogs.

I suggest they start to do something even if it is just for selfish reasons.

Do it before it is all too late!

Anonymous said...

Yes, you get what you vote for.

Anonymous said...

"Remember Ho Ching was suppose to bring change to Temasek? At that time, they said she will take 10 years to do it....looks like she is ahead of schedule leaving after 6 years."


The day after the resignation, the local State Times in trying to put a positive spin on the matter, wrote that as far back as 2005 Temasick was looking for a successor.

But in the same article it said Ho became CEO in 2004. So only after 1 yr in office the board has started looking for her replacement? Is she that inept? LOL

Anonymous said...

Wow,Lucky,you are getting better and better.

Anonymous said...

I recall that when Ho Ching was "selected" to be CEO of Temasek, one reason cited was that she showed that she was prepared to cut losses ( and thereby acknowledge timely a judgmental error - something only good traders are capable off). Obviously this didnt happen this time round unless one sees her "decision" to quit as cutting losses. But who suffers. The other reason given was that as PM's wife, she would be able to bring about drastic changes and overhaul the then slumbering state investment company previously headed by current or ex civil servants. That she did and by golly, to what extent. But again who is going to pick up the pieces. Poor Chuck...have some sympathy for him. But maybe not, he is being paid top dollar surely. So it is worth his while!

DanielXX said...

Ok lah enough of garment bashing. Constructive stock tit --- look at SPC and how it's cheonging. Maybe it might be the vehicle for George Bush oops Chip Goodyear to translate his BHP strategy to resource-poor SWF-rich (still) Singapore.

Maybe we can buy parts of oil basins in Thailand or Indonesia. That'll be the best thing to do since we can trade it off to the Chinese in the future!

Anonymous said...

@danielxX

Let's see how cheong is SPC's cheong.... Let's see which is greater demand or manipulation.

SG govt knows only how to make money from us and without transparency there may be nothing and have you seen the debts of companies like F&N, Singtel and NOL etc. maybe even SIA?

When we have nothing to compare their performance they looks like heaven sent but after looking at their performance today they are no better than lesser mortals.

rookielim said...

Lucky, according to the annual report of CPF board, majority of our CPF money are invested in "Special issues of Singapore Government securities"...

Note 12 (2007)
INVESTMENTS
Non-current
Special issues of Singapore Government securities

- maturity after 1 year
S$117,803,592,000
- Current maturing within 1 year
S$17,106,281,000

Do you know if this money is "borrowed" by Temasek and GIC to invest?

If so, then although we may not have borrowed money from foreign countries to invest, we may have "borrowed" from the people of Singapore to invest. Then, effectively part of the 58 Billions are actually our CPF money?

Is my understanding accurate?

Taishan said...

This woman CEO is much susceptible to hubris and flattery, especially from the West. The top honcho from the US bank exclaimed the Singapore SWF were tough negotiators. And guess what ! The clowns emptied their bank vaults for the West.
Talk about buffoonery !

Anonymous said...

As the AWSJ pointed out, the annual compounded return of 18% can be misleading without giving details. Julian Robertson, a famous hedge fund manager, had an exceedingly good annual average return of 25% over 20 years in his funds before he lost a substantial sum in a down year. When he finally closed down the funds, investors in the funds lost money after all profits and losses were added up. (This is possible because the size of funds were much larger in later years.)

I assume Temasek uses little or no leverage since it would be against the objective of a SWF and can result in great losses in bad years.

Anonymous said...

Why an FT can know much more than a sporean?
We are just 2nd citizen??

Anonymous said...

Lucky: "Even a former PM (Goh Chok Tong) with 30 years in govt can't articulate clearly what it is for."

That's not the first time he fumbled on such important issues. Months back in Hongkong at height of the crisis, he also said that he was not so much worried about the crisis of the banking industry but more about the real economy.

When I mentioned this to ordinary folks, young and old, they immediately give a puzzled look "Eh? Is'nt the banking industry part of the real economy". Or should I say a very important part of the real economy.

And here is the guy in charge of our money, the Chairman of MAS, but so confused. I think he is showing that he is more blur than the MM.

Sure, he is a nice guy but nice guys should'nt be in such important positions if they cannot think properly anymore. This includes the MM of course.

The rule by seniority, or even gerontocracy - rule by old men - is what Singapore has become. This is an added "bonus" on top of a pseudo democracy.

All this is just "whining", govt bashing, as some may say.

I agree but if you cannot even do that in the open world of blogs, then should we just let PAP and its controlled mass media say everything and lull everyone into a false sense of security?

Anonymous said...

When Finance Minister Tharman said in Parliament how Temasek and GIC invested and performed was not his problem, do you understand this is the way PAP totally abandons a fundamental duty?

Given that the national reserves + CPF savings are loaned to Temasek and GIC to the tune of over S$200 billions, the govt yet can say these 2 corporations are run like private enterprises, hence the Minister of Finance/govt/MAS cannot interfere with their business activities ... even when they are crashing?

Because the sums involved are so huge, just talking about them startles some I talked to into a state of curious silence - probably because of the difficulty in addressing the full enormity of the issue!

Anonymous said...

BAsed on my analysis, the stock market can go another 25% down and US can go to the dogs. Now the US Govt is involve in rescuing banks, the priority of payment for the banks are : -
1) Pay back loans from US Govt
2) Pay back loans from bond holders
3) If there is any left, pay back common equity or preferred shareholders,basically you can say goodbye to your money.
Also rate of return is calculated this way: for example if you have 1 million, you lost 50%, you now have 0.5 mio, it take you to make 100% from the new base of $0.5mio to recover your principal. what does this means?
It means the gain vs loss utility is not asymmetrical. Loss is harder to recover and more painful than the joy of gain.In the field of investment many forget about cutting loss which is the most important part. To cut loss mean :-
1) It hurts our ego
2) To admit defeat
3) To say we were wrong in our judgement
Mostly difficult and humbling for any true and smart investors.
Otherwise, we can only depend on HOPE for recovery, which is the worse decision to make.............prepare for the worse, we might have to wait for another 25 years

Anonymous said...

The opposition wants people to vote for them. Sure but do those guys in opposition dare to address publicly this most important subject issue of Temasek and GIC losses boldly by calling for a public forum or press forum to pressure the govt for more accountability now? For only then will it show you have what it takes to be the real opposition and not when it is safe to do so.

I see that their speeches of the few opposition members are so proper and courteous as though they are only talking about some dirty drains around that have not be cleaned up.

Still I have always been voting for the opposition but not because any PAP-approved (u know what I mean) opposition parties has any moral right to tell me what to do.

Anonymous said...

Actually what has happen in Singapore and around the world was written in the book of Nahum 3:14-17 (Bible-Don't be surprised, beacuase if you want to find true, don't look anywahere else)

Nahum describe the bureaucrats (govt's ) are like locusts
You broker and bankers are like locusts. Early on , they all at your service; full of smiles and promises, but Later when you return with questions and compliants. you'tt find they have flown off and are no where to be found.
They are like locust who sit on the wall and when the sun (heat is on) fly off,- that's the kind of allegiance you get....don't trust them with your money....but I am afraid, like the chapter say:Sorry. Its all too late.Never put your trust in Govt and bankers: Trust in the God and build tresaures in heaven-it applies to me as well.

Anonymous said...

To Rookie Lim

You are absolutely right! The CPF funds are indeed "transferred" to GIC and possibly Temasek through the AG via maybe the Consolidated Account. Now you know why there is a concerted campaign going on exhorting the younger Singaporeans to "lock in " their CPF funds for a longer period by transferring them to their Special Account. The carrot is the slightly higher interest offerred but these could be equivalent to up to 30 year funds ( since CPF SA withdrawal date is age 62 ) so it is debateable if a fair interest rate is being paid.

Anonymous said...

Let us hope GIC will have a foreign CEO soon.

The losses are a complete secret. Percentage loss cannot be calculated becase 56 man years (after President Ong) have not yet passes. If we don't know what we have, how to know how much we lost?

I hope the auditor general stop 'trusting' Tharman, PM and MM Lee.

Guess CPIB / Auditor General need to report to God (I don't mean MM hor)

Onlooker said...

Some do not even get to vote due to the ridiculous process/obstacle to prevent applicants to run for a seat and anyone who ran for the position is scrutinized with an extra scrutiny.with minute details blown out of proportion.
Opposition politicians will always put under bad light by the media that was totally controlled by a megalomaniac who does not even care if the citizens are suffering.
Bad news originating from the "Elites" will always be down played.

Anonymous said...

Lucky, Your CPF money is invested in
Government Securities,as the long term bond of Singapore will go down your CPF interest will go down with it.

IF GIC and Temasek will to fail, our CPF will be gone.

Think of it, who give you interest in your SA and MA. The money have to be borrow by someone with promise of interest.

IF every Singaporean drawn out, CPF will have to go to Temasek to redeem the Bond and Temasek will go bankcrupt.

Therefore, as the Singaporean grow old and is time to collect the money, Government will find way to delay it.

The CPF Income is another MadOff scheme to delay it.

Think of it Lock your 67K for 10 years and wait until 65 and start paying you.

Imagine, let say you have 100K people joining the scheme initially,

You get 6.7 billion in the pocket upfront.
You are not paying anything yet for another 10 years,
Next year another 100K join in
You get another 6.7 billion
It goes on until 10 years up and
you have a huge war chest of at least 67 to 100 billion.
You take this money and invest in something and slowing return 500 to 700 dollars a month to the Poor Singaporean. So they can take your time and the best you die off at 70 years notice the refund about 75k to 90K. You will make money out of it.

Now let say, you take 67K and buy a good stable dividend company or Reits and wait for 10 years.

Assuming dividend are reinvested.
at 5% return, 67K will become 120K
and you get your base money intact and collect your 500 to 700 dollars monthly for the rest of your life.

This is a simple delay tactic that we can never come to PAP to ask for money because many working singaporean will have CPF income 500 to 700 per month after 65 years old.

It is self funding scheme that the Singapore Government will need not to worry as money is yours and I am running it and slowly give you back until you die!

John Harding said...

Is Charles W. Goodyear IV an impostor? Why are there two men named Charles W. Goodyear IV? More at www.johnharding.com.

Anonymous said...

"You are absolutely right! The CPF funds are indeed "transferred" to GIC and possibly Temasek through the AG via maybe the Consolidated Account."

The CPF is transferred to MAS which in turn transferred to these inept Lee-owned investment company.

They can only do using third-party.

Anonymous said...

"These are 2 fundamentally different goals - where do you put your money that is meant for "rainy days" definitely not in equities!"

Very sharp of you, Mr. Tan.

Anonymous said...

Well, SM Goh did say that we will have more good years while he was still the PM. Now, it seems we truly are having one 'Goodyear' in Temasek.

I am also beginning to believe the other prophecy coming true, and that is 'a dose of bad government'. It is happenning sooner than expected, just judging by the look of things going so badly off-course.

Lost Citizen

Anonymous said...

In parliament, Lim Hwee Hua said that GIC has lost 41%. GIC's capital was reported to be about $550 billion by foreign press. So 41% means S$225 billion!

And Temasek's loss of 31% or $58 billion is up to Nov 2008. The period after Nov 2008 and now has not been taken into consideration.

From the way things are going, by Nov 2009, the losses could easily reach 50% or more.

Inings.