TR EMERITUS

By Bei Hu and Yoolim Lee Feb. 6 (Bloomberg) -- Temasek Holdings Pte said Chief Executive Officer Ho Ching will step down after almost seven years at the helm of Singapore’s $130 billion state-owned investment company. Chip Goodyear, 51, a former CEO of BHP Billiton Ltd., will succeed Ho, wife of Singapore’s Prime Minister Lee Hsien Loong, effective Oct. 1, Temasek Chairman S. Dhanabalan said at a press conference today. Goodyear will be the first foreigner to run the sovereign wealth fund. Ho drove Temasek’s expansion outside Singapore with acquisitions in China, Europe and the U.S., increasing financial assets to 40 percent of the fund’s portfolio. Goodyear takes over as the credit crisis ravages the value of Temasek’s investments in Barclays Plc, Merrill Lynch & Co. and Bank of China Ltd. The MSCI World/Financials Index slumped 60 percent in the past year. “In hindsight, Temasek came in too early but it would be unfair to say Temasek made the wrong call to invest in American banks,” Francis Lun, general manager at Fulbright Securities in Hong Kong, said. “At that time it was seen as a good opportunity to invest in U.S. banks on the cheap so it would be unfair to criticize the investment officers for the decision.” Ho, 55, joined Temasek as a director in 2002. She became executive director that year and CEO in January 2004, according to information posted on Temasek’s Web site. Ho, who said she won’t remain on Temasek’s board, told reporters today she will decide on her next career move after she resigns in October. Sovereign Funds Losses at Temasek and Government of Singapore Investment Corp., the nation’s other key investment company that manages more than $100 billion of reserves, were smaller than the decline in global markets last year, Finance Minister Tharman Shanmugaratnam said last month. Temasek generated annual returns of 17 percent between its inception in 1974 and the end of March. Sovereign wealth funds in Asia and the Middle East have pumped money into global financial institutions to help replenish capital eroded by writedowns and losses. Barclays raised 5.3 billion pounds ($7.8 billion) in October by selling securities to a group of Middle Eastern investors including Qatar Holding LLC. Under Ho’s watch, Temasek bought stakes in China Construction Bank Corp. and Bank of China, and became the largest shareholder in Merrill Lynch before its takeover by Bank of America Corp. Mining Focus Goodyear spent 14 years in the commodities industry and until September 2007 was CEO of BHP, where he presided over record profits at the world’s largest mining company. A former executive vice president and chief financial officer at Freeport- McMoRan Inc., Goodyear began his career at Kidder, Peabody & Co., according to information provided by Temasek today. During his time as CEO, BHP’s stock rose almost fourfold, outpacing the MSCI Materials Index’s 83 percent advance. Between 2003 and 2007, revenue went from $15.6 billion to $47.5 billion amid record gains in commodity prices. He holds a Bachelor of Science from Yale University and an MBA from the Wharton School, University of Pennsylvania. “It is an interesting decision given his mining background and experience,” Charles Kernot, an analyst at Evolution Securities Ltd. in London, said by phone. “Perhaps he is going to be saying we should be looking at this a bit more, all these prices have come down maybe there is some stuff out there that is quite cheap and attractive.” The Reuters/Jefferies CRB Index tracking 19 commodities ranging from energy to grains dropped 36 percent last year, the biggest annual decline since at least 1957. Energy and resources accounted for 5 percent of Temasek’s investments in the year to March, down from 6 percent a year earlier, according to the company’s annual report. Investments in Singapore declined to 33 percent in the year, from 38 percent in the 12 months to March 2007. Reviewing Candidates The board has been reviewing internal and external CEO candidates since early 2005, and Goodyear was identified as a possible successor in 2007, Dhanabalan said. Ho’s departure wasn’t linked to the performance of Temasek’s investments, he said. “Whether this is a way of making a change of someone who is related to the prime minister, this has been a point that I’ve dealt with since the first day Ho Ching was appointed as CEO,” Dhanabalan said. “I was very instrumental in bringing in Ho Ching and it was based purely on merit and has nothing to do with her relationship to anyone.” Goodyear said he agreed to take the position after discussions with Ho and her team over more than 15 months. “A combination of great foundation and wonderful set of businesses, fantastic people in the organization and footprint that we can build and grow on, that for me is certainly a win-win,” he told the press conference today. Career Path After graduating in 1976, Ho joined Singapore’s Ministry of Defence, where she was assigned to the Defence Science Organization, which adapted and developed weapons systems for the island-state’s fledgling military. Ho joined a Temasek unit, Singapore Technologies Pte, an unlisted holding company for Temasek’s engineering, technology, military and property companies, in 1987. Her first job was deputy director of engineering. She rose to president and CEO before “retiring” in 2001 at the age of 48, according to her official resume. The following year, Temasek’s Chairman Dhanabalan appointed Ho as executive director. In October 2004, Ho, who holds a Master of Science in electrical engineering from Stanford University, ended 30 years of financial secrecy at the company by publishing Temasek’s first-ever annual review. Bank Investments “Under Ho Ching and her leadership, our mission, our values an our strategic directions have been defined,” Dhanabalan said. “Temasek has grown into an institution sitting on a foundation of strong and diverse international talent, and firmly anchored to sound commercial principles and value creation for shareholders.” Temasek invested about $5.9 billion in Merrill Lynch. It bought about 9 percent of the New York-based firm in December 2007 for $5 billion, or $48 a share, though its effective purchase price was reduced in July when the bank gave it a further $2.5 billion in shares. The investment bank’s shares lost 78 percent last year before the stock was delisted. The Singapore investment company now holds about 189 million shares in Bank of America after converting its Merrill Lynch stock. Bank of America completed the Merrill Lynch purchase on Jan 1. No Regrets Temasek is one of the largest shareholders in Standard Chartered Plc, DBS Group Holdings Ltd. and owns stakes inIndia’s ICICI Bank Ltd. and lenders in Indonesia, South Korea and Pakistan. Along with China Development Bank Corp., Temasek paid 3.6 billion euros ($4.6 billion) in 2007 for a 5.2 percent stake in Barclays and added another 4.5 billion pounds in June at about half the price. Barclays’ share price plunged nearly 66 percent since June. Temasek and GIC lowered their holdings in equities “early in the crisis,” helping them post a smaller drop in their portfolios in 2008, Shanmugaratnam said. Temasek in August said profit doubled to a record S$18.2 billion ($12.1 billion) in the year to March, as sales of energy and Chinese banking assets offset slowing returns from stock market investments. Ho said she had been contemplating her departure since 2005 because it is important for CEOs to have a succession plan for “good governance” of their organizations. “At this point, I’m not weighing anything that I want to do post October,” Ho said. “Is there a regret? I think if you want to run life with regrets you may end up doing very little.” Source: Bloomberg  Read More →

By Fang Zhi Yuan and Jeremy Koh The much vaunted Job Credit Scheme which costs taxpayers $4.5 billion dollars to save jobs will help employers more than workers. Speaking in Parliament today during the Budget debate, Workers' Party MP Low Thia Kiang criticised the Jobs Credit scheme, saying it will indirectly favour big companies which may still be profitable and have no intention of retrenching workers. “Are we using our reserves to increase the profits of profitable companies in this downturn?” he asked, citing the $6.8 million annual cash grant Sheng Siong supermarket will get under the scheme, which pays employers a cash grant of 12 per cent of the first $2,500 of a worker’s wage to keep him on the payroll. (read full report here) The Job Credit Scheme provides a blanket grant to all companies without assessing their financial situation on the ground and could end up helping big government-linked companies like NTUC instead of smaller SMEs where help is more acutely needed. Larger companies with more workers on their payroll will use up more cash grants from the Job Credit Scheme which may be used to finance other aspects of their operations instead of benefitting the workers directly.   The employers can enjoy the best of both worlds by not retrenching workers to qualify for the cash grant and yet still impose other cost-saving measures like shorter work-weeks and wage cuts which will have a detrimental impact on the ordinary workers. There should be more fine-tuning done to the present scheme to ensure that Singapore workers will truly benefit from it. Government-linked companies like DBS and NTUC should be exempted from the scheme since they have pledged earlier not to retrench workers. Big corporate firms who are still making a profit in spite of the economic downturn should not qualify either. Instead, there are other putative measures which can be put into place to prevent companies from retrenching workers such as mandating the companies through legislation to provide a monthly retrenchment fund to sustain each retrenched worker till they find another job. Special leeway can be given to struggling companies to retrench workers if they had to close down without doing so. The Job Credit Scheme should be applied solely to Singapore citizens and not to PRs to encourage companies to keep their Singapore workers. A clear distinction must be made between Singaporeans who have served National Service and whose families are here together with them and PRs, most of whom are only here to work and do not intend to make Singapore their permanent home. The recent report on the spike in the number of foreigners applying for PRs to ward off the threat of retrenchment gives us an indication of how the scheme can be easily manipulated by foreigners and PRs alike in their desperation to keep their jobs in Singapore. The interests of Singapore citizens must come first before anybody else. Retrenchment will affect a Singapore worker with a family to feed more adversely than a PR or foreigner who can easily return to their native land. When our economy recovers, the PRs and foreigners will naturally flock to our shores en masse again. We do not have to worry about not having enough PRs to boost our "human stock" as Singapore still remains the favored destination for job seekers in the region. On the other hand, if we do not give sufficient help to our retrenched workers to tide them over this difficult period, it will have serious repercussions on the next generation. His children may not be able to continue school and may even have to enter the work-force early to supplement the family income. Given the high cost of studying in local universities, how many of our undergraduates have to postpone their studies or drop out of their courses altogether because their parents cannot afford their tuition fees ? And yet we have PRCs and Indian students who are studying here on government-sponsored scholarships. Though there are various schemes such as Workfare and SPUR available to help unemployed/retrenched workers, some may not be aware of the appropriate channels to turn to for help and the administrative hassles involved may become a barrier instead to those in need of urgent assistance. The government should set up an immediate retrenchment package to cater to retrenched workers. The moment they are retrenched, they should be allowed to "borrow" from the CPF accounts to tide them over the difficult period on top of a monthly government grant for basic sustenance so that their families will continue to have a roof over their heads and need not go hungry. Upon finding a new job, the worker can repay his "CPF loan" on a monthly basis back to the CPF board. There is no reason to prevent Singaporeans from drawing on their own savings for rainy days when even our reserves have to be used to fund the "Resilience Package". While saving the jobs of workers remain the paramount concern of the government, much more can be done to ensure that vulnerable Singaporeans do not suffer extraordinary hardship during such extraordinary times.  Read More →

By Fang Zhi Yuan, Senior writer EDITOR'S NOTE: In this short write-up on the Norwegian Pension Fund, I shall use the transparent nature in which it is managed to prove a point that the government's repeated explanation that Singapore's SWFs must operate behind a cloak of secrecy in order to protect its investments are both irrational and lame. Background Norway, one of the world’s largest petroleum exporters, has invested its oil wealth in a fund with a current market value of more than $350 billion. This fund known as "The Government Pension Fund" was established in 2006 and consists of two parts: "The Government Pension Fund - Global", which is a continuation of the Petroleum Fund, and "The Government Pension Fund - Norway", which was previously known as the National Insurance Scheme Fund. The purpose of the Government Pension Fund is to facilitate government savings necessary to meet the rapid rise in public pension expenditures in the coming years, and to support a long-term management of petroleum revenues.   Who owns it The Norwegian Ministry of Finance is responsible for the management of the Government Pension Fund. The operational management of the Pension Fund - Global is carried out by Norges Bank, which invests the fund’s capital in bonds and equities outside of Norway in accordance with guidelines issued by the Ministry. The operational management of the Pension Fund – Norway is carried out by Folketrygdfondet.   Provisions on the management of the Government Pension Fund The Government Pension Fund Act was passed by the Norwegian Parliament in 2005 to regulate the management of the fund. All aspects of the management of the fund are tightly scrutinized and regulated including the operational risk, reporting, and ethical guidelines. The Fund shall be invested in accordance with the following asset allocation: - Fixed income instruments 30 – 70% - Equity instruments 30 – 70% The composition of the strategic benchmark portfolio is set at 60 per cent fixed income and 40 per cent equities. A detailed annual report is to be prepared by the Norges bank which shall contain: - Norges Bank’s strategic plan and the investment strategy for the Fund - A list of all significant external service providers, including a complete list of external managers - An account of the standards employed by Norges Bank for the purpose of valuation (accounts), measurement of return, along with management, measurement and control of identified risk factors (market risk, counterparty risk and operational risk) Under the Fund's strict ethical guidelines, it is barred from making investments that entail an unacceptable risk that Fund is contributing to unethical acts or emissions, serious violations of fundamental humanitarian principles, gross violations of human rights, gross corruption or severe environmental degradation. Interestingly, under provision 3.2, the Fund may not be invested in fixed income securities issued by Myanmar which Singapore's SWFs have a substantial business interest in. The roles of the Ministry of Finance, the Norwegian banks and other stakeholders are also spelt out clearly. Read the full provision here   Management model and organization Norges Bank Investment Management (NBIM), a division of Norges Bank, is responsible for the management of the Global Pension Fund - Global. The Executive Board has overriding responsibility for Norges Bank's operations. It consists of seven members, all appointed by the King. The Supervisory Council, which consists of 15 members appointed by the Norwegian Parliament, is the Bank's supervisory body and approves the bank's budget. The Supervisory Council organizes the auditing of Norges Bank which is to submit an audit report to the Supervisory Council on the Bank's annual financial statements. It is also required to submit a quarterly report to the Ministry of Finance on the management of the fund. The Office of the Auditor General is responsible for the final audit of the Government Pension Fund and it bases its work partly on materials from the Central Bank audit. In 2006, the Executive Board set up an Advisory Board to support its work on investment management. The Advisory Board consists of four internationally recognized experts with extensive experience from large investment management institutions.   Transparent nature of the Norwegian Fund What makes the Norwegian fund different from several other sovereign wealth funds is the amount of information it makes public about its strategy and investments. Its performance and risk exposure are reported quarterly and its holdings in about 3,500 companies are detailed annually; in most cases, its investment in any company amounts to less than one percent of available shares. The fund does not seek to control companies through buy-outs. In fact, by its own rules the fund restricts its ownership in any company it invests in to five percent of shares. The investment objectives are purely financial in nature, safeguarding assets for the long term.   Performance of the Fund The fund returned 7.9 percent last year and has averaged 6.5 percent a year over the past decade. After accounting for inflation, costs and management fees, it has averaged an annual return of 4.6 percent since its inception, outpacing the 4.1 percent gain in a government-set benchmark. The Norwegian Pension Fund – Global has a current market value of more than $350 billion (January, 2008), equaling about $75,000 for every Norwegian, investsted in markets all over the world. Close to one third of this is invested in the United States. Over time, the share invested in equities will increase to 60 percent, while 40 percent will be invested in fixed income.   Conclusion As we can see from the example of the Norwegian Pension Fund which manages assets greater than both Temasek and GIC combined, it is possible to generate a commendable return on its investment while adopting good practices of transparency and accountability in the management of the fund. Political leaders are not involved in the management of the funds which lie in the hands of professional fund managers. A system of check and balance is put in place to ensure the funds are not misused and investment decisions are made in accordance with the guidelines. With the United States demanding greater transparency from SWFs, it is time that Temasek and GIC start emulating the fine example of the Norwegian Pension Fund and shed more light on its modus operandi. Read more about the Norwegian Pension Fund here  Read More →