May 25, 2007

I want to be just like Temasek

This article in the Times Online website points out China's state investment fund looking up to Temasek as a role model for its investment decisions. Looking at Temasek's investment track record, one cannot help but be skeptical of their returns in the long run.

When the Chinese government wants to learn how to invest like Ho Ching, and the China-man on the street is selling his house and withdrawing his life-savings to invest in the stock market, it's not hard to imagine why Greenspan and Lee Kah Shing are warning of an imminent crash for the China stock markets. I'd get out in a hurry, personally.

Fund will avoid touchy deals as it pursues big returns
Jane Macartney in Beijing

China’s $200 billion (£102 billion) state investment fund will avoid politically sensitive acquisitions in its search for higher returns on its vast foreign currency reserves.

The fledgeling state investment company revealed that it had agreed to pay $3 billion for a 9.9 per cent stake in Blackstone Group, the private equity fund, when it makes an initial public offering next month.

The deal brings together a communist government sitting atop the world’s largest stash of currency reserves – $1.2 trillion – and a New York-based fund that is synonymous with capitalism.

China is eager to avoid the political backlash that forced CNOOC, the state-owned oil
exploration firm, to scrap a takeover bid for Unocal, a Californian rival, in

Jessie Wang, a senior government investment official who signed
the agreement with Blackstone, said that the new company would steer clear of
sensitive deals. He said: “My personal understanding is that the investments
basically will be portfolio investments and will be purely financial
investments, not a kind of M&A control-type of thing.”

Steve Schwarzman, a co-founder of Blackstone, said yesterday that he expected the
Chinese fund to repeat its move into private equity. He said: “It should be, or
will be, part of a trend. Blackstone is the first, but, over time, I would suspect there would be others.”

However, under the terms of the agreement with Blackstone, the Chinese fund is barred from giving money to any other private equity firm for one year. China, which parks most of its reserves in safe, low-yielding dollar bonds, is desperate to increase its returns. The Chinese have given up any rights to vote as part of the Blackstone deal and this could be a feature of future investments.

Another clue to the fund’s investment philosophy is that China has declared Temasek, the state-owned Singaporean asset manager, to be a role model. Temasek controls Singapore Airlines, but it also has a broad Asian portfolio that encompasses Chinese banks and Thai telecommunications companies.

The trick for China as it hunts for deals will be to be as stealthy and decisive as it was in hooking up with Blackstone. The consensus-based politics of Beijing is not a recipe for success as a fund manager, yet Mr Schwarzman said that he had been impressed. It was Beijing, not Blackstone, that had suggested taking an IPO stake and, after the
initial proposal was made, a deal was clinched within three weeks.

Mr Schwarzman said: “I doubt that there is any government in the world that could have done it more efficiently or more professionally.”

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