Monday, September 17, 2007

Singapore 'CDO Queen' Surveys A Battered Field

Source : The Business Times, September 17, 2007

Ms Goh: Managers who are not very good in this business will be wiped out

She was in the business long before it made newspaper headlines that reverberated around the world.

Goh Mui Hong runs two fund management companies that take care of some $6.7 billion of assets. Of these, about $5.3 billion are collateralised debt obligations or CDOs - complex financial products that probably need no introduction by now.

Heading ST Asset Management (STAM) as its president and chief executive, Ms Goh is also president of Vertex Venture. Both are Temasek Holdings companies managing third-party funds. But her work with CDOs goes way back to the 1990s to her days at OUB and UOB Asset Management.

Ms Goh says her CDOs are profitable, and she has to date launched 19 issues, 12 under her present employer. 'So far, my experience in CDOs, in OUB, UOB Asset Management and here, has been positive.'

The annual internal rate of return from December 2002 to August 2007 is currently 19 per cent, including fees for the amount from the CDOs that is invested by STAM.

With such an enviable track record, what does Singapore's queen of CDOs think of the current troubles in the CDO markets?

'I look at this as a cyclical thing - it will wipe out managers who are not very good in this business.'

'A lot of managers came into CDOs, although they have no experience - for us it was a lot of competitors,' she says frankly.

On her work, she says that the companies under her and her 99-strong team posted after-tax profit of $43 million for 2006.

STAM and Vertex, the latter of which invests in high-tech companies, earn fees by managing money for offshore investors. STAM invests a small amount of its own money in CDO funds to give investors confidence, and in the most risky bits at that.

'We invest (to give) comfort (to investors) and always take the most risky tranche - everybody has the profit I have,' she says.

Ms Goh, who introduced CDOs to Singapore in 1998 under the then OUB Asset Management, says the huge size of hedge funds and their leveraging is part of the current problem gripping banks that have been funding hedge funds to buy CDOs: 'It's because hedge funds borrow from banks - the CDO itself is not leveraged.' Leveraging by hedge funds is not new; the problem is that five years ago the hedge fund industry was not so big, she says.

But she thinks the current crisis has created great opportunities. Prices are now even lower than at the 1998 Russian crisis when one could buy commercial paper at nine cents to the dollar, she says. Panicked investors are now selling CDOs at their coupon or interest rate as if there is no principal left, she adds.

Meanwhile, she's continuing to blaze the CDO trail. Last year, she launched the world's first all-Indian corporates US$300 million CDO. She has just completed raising US$195 million for two global corporates CDO and is now going for an all-Asian corporates CDO of US$125 million.

But investors are skittish, with bad news coming out every other day, and it is difficult getting their money, she says. 'As fund managers, we want new money at market lows; at market highs, you're only happy for a short time.'

As to Singapore's fund industry, she thinks it is doing well because many players are conservative and the industry enjoys a good reputation from its many qualified professionals. 'While the new fund managers believe in borrowing . . . I discourage clients from borrowing,' she says. Describing herself as old-fashioned, she says she dislikes managing borrowed funds. 'I prefer to manage surplus funds,' she says, adding, 'We're very, very careful.'

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