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  • Pivot, change, adjust

    “Our lives are defined by opportunities, even the ones we miss.” -- Eric Roth 1992 It was the year I took the PSLE. Some might say I was in one of the top notch primary schools in today's terms. But it came from humble beginnings, being located in Holland Village. I had been fortunate and always front-running in the cohort of the best performing students. My childhood dream was to be a doctor and I had aimed for a score of over 260 . That would surely propel me into the best secondary schools. But when the results were released, I had a score of 237, a decent grade no doubt for many at that time, but still fell incredibly short of what I had hoped for. I could not qualify for any of the schools that I had shortlisted. I remembered walking along the road to the bus stop just outside the school as my mum and I re-evaluated my secondary school options. I ended up going to a school that I had never heard of. Having said that, those four years were one of the most transformational periods of my life. Excellent teachers and numerous outdoors expeditions shaped me into a highly athletic, all-rounded and resilient person that good grades alone could not achieve. 1996 On the morning of my English 'O' levels, I came down with an extremely bad case of food poisoning. I was immediately sent to the hospital via a taxi in a wheelchair. I vaguely remembered the nurse putting me on a drip as I gradually passed out. I did a triple science route as part of the pre-requisites to study medicine, and had nine subjects under my belt. English was just one of them. However, failing or skipping the English papers meant that you had to re-take the entire year of school again, regardless of the other eight subjects. Everything was on the line here. When I had woken up, I remembered very clearly it was 8:25am and a man was seated just across the bed where I was. The school had been informed of my circumstances and sent an invigilator to the ward. I ended up taking my English papers nearly an hour behind every one else, in a slightly woozy state and with a thick hypodermic needle stuck in my right arm. Although it had just been a simple bout of food poisoning, I was put under observation for a week. Ironic as it was, I scored an 'A' for all the papers that I sat for during my time in the hospital. But I still fell short of the requirements for entry into the top five junior colleges. 1999 I did well enough for my 'A's to do nearly any course I wanted in university except for medicine. I eventually gave it up when I traded biology for athletics , which I later obtained school colors for. I was even offered a prestigious government teaching scholarship to study at some of the most reputable universities in the US. The catch was that I had to dedicate six years of my life to the public education sector upon graduation. Later on during my national service, they had once again offered to send me overseas to a prestigious military college in Japan in exchange for six years in the army. I declined again, mostly because I didn't like the idea of being bonded. Besides, I felt that there were much more job opportunities beyond civil service after four years of studying in a university. I wanted to be an engineer - at least that's what I remembered one of my teachers in junior college said then, " Go study engineering, it will always be in demand ". So I enrolled in Computer Engineering, believing that it would lead me to the holy grail of all professions. 2006 Studying engineering in university proved to be much more difficult than I had thought. I was toeing the red line and nearly got booted out. But my life changed forever when I decided to spend a year living and working overseas in China. I had been introduced to the glittery world of business and finance. Everything that I had looked forward to in an engineering career had basically been undone during those twelve months in Shanghai. I convinced myself that I wanted to be in banking, specifically investment banking . My entry into KPMG Corporate Finance marked the day that I would renounce my engineering career forever. Based in Raffles Place, I was excited to be in the league of young and aspiring fresh graduates, eagerly looking forward to make that eventual transition into a bulge bracket bank with a five-figure monthly salary. But I missed that boat when the 2008 financial crisis struck, crippling the hiring plans of the large investment banks across the globe. In the twist of fate, I managed to join a mid-market Korean securities house. I clocked my mileage, put in the hours and late nights, adhering to the rites of passage, before subsequently moving on to BNP Paribas and Standard Chartered Bank as part of a larger and more institutionalised corporate finance set up. 2010 Investment banking turned out to be a jealous and selfish bitch, demanding your personal and social time more than anything else. I had worked up to sixteen-hour work days, eighty-hour work weeks, pulling all-nighters, even on weekends and holidays. I was simply trading time for money, as one of my colleagues had put it at that point of time: Wake up, drink coffee, generate pitch books, run financial models, update trading comps, get yelled at by seniors, rinse and repeat. Over the years, I had received several offers to jump ship, some of those include buy-side and corporate development roles that promised a more sustainable lifestyle and decent pay check. But all this time inside my head was a voice that kept saying, " just stick to the plan, put up with this for a few years and then leave ." 2016 Leaving banking and building a business from scratch was one of the best decisions I had made, and possibly one of the most liberating things that I had ever done for my career. But nothing could prepare me for what was to come: Waking up every day without reporting to a boss at the office, learning the ropes of HR, operations, finance, legal and sales all at the same time, the disappointment of repeated client rejections, but most of all, the anxiety of watching your bank account being depleted month after month. No one would be able to understand how difficult the process was without having gone through this experience first-hand. Entrepreneurship would basically test your limits and push you to the breaking point, again and again. Just picture a baby trying to force a square peg through a round hole. Under any situation, no matter how hopeless it seemed, your mind would always try to find a solution. It's good mental training and personal development. A lot of people say that money shouldn't be the reason why you start a business. It should always be about purpose, solving a pain point in the industry, making a better product, or offering a better service to the world. I never explicitly admitted it but what mostly drove me to do it was the naive disillusion that I could make lots of money, in a relatively short time. Later on, I realised that employees are in fact the richest people in the world. They will all be slaves but they are still rich [1] . 2021 It felt surreal when I left Singapore. It had been an indefinite job posting and I had initially planned to return possibly after two years. I am into my fourth year now and residing in Hong Kong today feels so much different from it was three years ago. A part of it feels like a home and a sanctuary. Sometimes I think about how life would be like had I not accepted that offer to be based overseas. I was watching a documentary about a hawker on CNA earlier on, stuck with me: Post publication notes: [1] Entrepreneurs of course have the potential to be much more wealthy, but no one considers the tail event. Only a miniscule percentage of entrepreneurs make it really rich. For every mind-blowing successful start-up seen on social media, there are at least a thousand others that have failed and don't even show up in the headlines.

  • A great way to fly again

    On 24 June, Singapore Airlines completed the full redemption of all its outstanding MCB (mandatory convertible bonds) that had been issued during the throes of COVID-19. This means that if you had put in money to buy those bonds in 2021, the company returns the entire sum that you had invested, with a pre-agreed premium on the investment, even if you were content to keep it to maturity and have them converted into shares. The Business Times calls this " an interesting chapter of its history ". I think it's a good lesson in corporate finance and financial management, and we need more creative structuring like this in our capital markets. The premium for the final redemption works out to about 12.6%, which translates to be roughly 4.0% per year: Had SIA not followed through with the redemption, allowed you to hold those bonds, and converted the face value at S$ 4.84 per share at maturity, the IRR would be closer to 8%, depending on where you think the share price lands in 2031. Now a 4% to 8% annualised investment return over ten years may not seem like a lot if you compare it with interest rates today and also look back on how delicate things were during COVID-19. Some airlines even came close to bankruptcy during that period of time. Cost of capital was high. Buying airlines and all things travel-related were high risk investments, especially if you think about the speed at which SIA was haemorrhaging capital to the tune of S$ 8.8 billion in a year after its band aid of a rights issue in 2020. Even with sovereign underwriting from Temasek Holdings, there was simply no saying when the bleeding would stop. But ignoring the grim backdrop, a 10-year sovereign-backed corporate bond with step-up interest rates of 4 to 6% would have been a highly attractive investment, considering SOFR rates were at approximately 1.5% in 2020. The real pot at the end of the rainbow was swapping those bonds into SIA shares, in which the conversion price was at a big discount to SIA’s share price at pre-pandemic levels. After all, the prime minister had given his soft endorsement, saying that “ SIA will be a great way to fly again ”. How much worser could it get? What made a significant difference also was that the convertible bond offer was given exclusively to existing shareholders - a creative concoction of debt and equity. If you had missed out on the 2020 rights issue, buying SIA shares off the market would provide another window of opportunity to get in, or double down, albeit at an even lower price. And then you get the bonds as well, which ultimately increases the probability of a successful convertible bond issuance. It’s an ingenious way to market a deal. Most companies will just go on roadshows, paint a rosy picture against a hockey stick chart and promise the eventuality of brighter days ahead. But these MCBs were essentially structured as a “private club”, open only to existing investors, with a ten-year bet on the aviation sector and SIA’s reigning leadership over that period. Looking back, I think the conversion mechanics in the whole deal was arbitrary. The huge equity upside from swapping those bonds into equity at S$ 4.84 per share was probably meant to justify the low cost of debt. If you ask me, I think no one really baked in a scenario to have those bonds converted to shares. Ten years would give SIA sufficient runway to set aside capital to redeem those bonds at any time: Three years tops for the pandemic to play out and the economy to recover, plus another seven years or so to turn around. The worst case? Air travel doesn’t recover and the company’s business model becomes permanently altered. A remote possibility nevertheless, in which case, swapping those bonds into equity wouldn’t really be such a bad deal after all. [Disclaimer: I was a holder of SIA shares and its MCBs.]

  • Older, but none the wiser

    Reflections for the day: True wealth was never about the accumulation of money but a way of life. There is no point in comparing yourself with those who work 7-day work weeks, or clock 18-hour days earning heaps of money. This applies also to those working regular hours with relatively more ‘free time’ on their hand, and who are earning a fraction of the income. “There is no universal truth in terms of what makes up a good life, only what works for you and allows you to sleep peacefully at night” - Morgan Housel Once the rain is over, an umbrella becomes a burden to everyone. That’s how quickly loyalty ends when the benefits stop. Don’t take everything too personally. A lot of what we misconstrue as friendships and good relationships tend to be mostly transactional. Don’t overshare. Not everyone wants the best for you. Privacy is power, and people can’t ruin what they don’t know. Give yourself space. Sometimes all you need is a little more space to think through things and solve your problems - space to breathe, space to take a step back and more importantly, to look at the bigger picture. Nature often provides a good setting for this. You bear ultimate responsibility for everything that happens to you. They say don't be too hard on yourself. That's only because most people don't want to face up to the fact that they are responsible for everything good or bad that happens to them. Once you recognise this, you stop assigning blame and focus on just getting to the root of fixing any issues. If something doesn’t work for you, change it, or eliminate it. Run your life for gross profit, spend within your means, and don't buy more than you can afford. Manage your finances based on gross profit, not revenue. Never chase or compare yourself with the high-income earners or those who own a lot of stuff. You don’t know what kind of liabilities come attached with it. Buy experiences, not objects. If the volatility of tens of thousands of dollars per day keeps you up at night, maybe you shouldn’t be managing money. You either get the job done, or not. In the early days of school, we were brought up believing that you get credited partially by showing your calculations and workings next to the answers in some exams, particularly for math and especially when it is the wrong answer. This was done mostly to encourage students who did not get the right answers, but showed effort in trying. In the working world, right answers are everything. Results drive everything. Steve Scharzman illustrates this aptly during his guest address at Yale where he shared his experience working at Lehman Brothers [start watching from 48:20]: "In the real world, there is only one grade for every project... which is an equivalent of an 'A' grade. And the definition of an 'A' isn't the same as in academics. In academics you can get an 'A' sometimes with a 90, sometimes with a 92, a 93... and that's sort of pretty good. In our world, an 'A' is a 100. This was shocking to me, because I wasn't an 'A' kind of person..." Don't justify how hard you are trying to your clients or bosses. Stop complaining about how much work you have put in. No one is coming to pat you on the back or give you a gold star for your effort. No one cares, get over it. You either get it done, or not. That's it. You matter only to the people who genuinely care about you. If you drop dead tomorrow, your line manager will posthumously say a few words of thanks and condolences, and then proceed to hire your replacement the very next day. You only matter to your company and your colleagues as far as economics go. Be that as it may, so easy to say, harder in practice. So much depends on reputation, guard it with your life. Law number 5, from the book “ 48 Laws of Power ”. One of the most important things to a man is his reputation. When negotiating , remember that Nassim Taleb says: "What matters isn’t what a person has or doesn’t have, but what he or she is afraid of losing." Trust your gut. If you do something and find yourself awake and unable to sleep at night, with a nagging feeling in your chest or gut, it probably means that whatever you are doing is posing a threat to something of great importance to you, or is conflicting with your core values deep inside. Whatever that is, stop doing what you are doing. And the next time you do anything, remember that nagging feeling. At the end of the day, you are only accountable to yourself when you wake up in the morning. Be less judgmental. Don’t impose your moral high ground and standards on others in terms of what you think it means to be rich, what kind of work they are engaged in or what they say and do. You don’t know what they have gone through or have to put up with. “Some people were born to sit by a river. Some get struck by lightning. Some have an ear for music. Some are artists. Some swim. Some know buttons. Some know Shakespeare. Some are mothers. And some people - dance.” - Eric Roth (from the movie " The Curious Case of Benjamin Button ") Fat accumulates in organizations because most people work on the basis that it is better to follow instructions, even when it is wrong and get paid, rather than to be right and lose your only source of income for the wellbeing of the firm. To paraphrase a Chinese colloquial saying: Stakeholders are the ones who foot the bill eventually . (Also, see number 40 here .) Money buys a lot of things , but the most important thing it buys is the option to walk away from everything.

  • The good money comes later in life

    The concept of ‘retiring early’ has always eluded me. Only recently did I decide to look at this from a quantitative and slightly whimsy approach just to see how the math all works out. The results and conclusions were interesting to note. I did up up a table modelling the annual compensation packages in each year from the age of 24 - the assumed university graduation age - all the way to an arbitrary retirement age of 55. I assumed that past 55, one increasingly finds it difficult to obtain gainful employment. At 24, starting with the average graduate monthly salary of S$ 3,000, I then applied an annual increment of 3.0%, which is more or less in line with the headline inflation rate. The conclusion that I had arrived was: Once you reach the onset of the forties, (and to be more specific, when you are forty years old), it will take only 10 years to recover all the income that you have earned over the last 16 years i.e. roughly equivalent to two thirds of the time taken. Of course this simple abstraction trivially excludes any bonus payments received throughout the years, which we know too well can be unpredictable. Furthermore not all increases in salaries follow the headline inflation. For example, getting promoted into a more senior position with more responsibilities typically comes with a double-digit pay raise, or sometimes even a multiple increase over the current income levels. It is also commonplace to see double digit raises when jumping ship, and in some cases, even a sign-on bonus. But you get the point. In some ways, applying a 3% wage inflation over one's useful economic life seems a tad conservative and over-simplistic. Even for non C-suite positions, moving between grades typically involves a huge bump in salaries. So I decided to take it up a notch and model this more accurately using the pay progression in the consulting and finance industry, modelling it against what I remember of the Big Four accounting firms. The chart looks something like this: The numbers are even more pronounced once you hit your mid thirties and beyond. With ten years of experience on your back, it will basically take you only half the time required to obtain the same aggregate amount of income earned since you graduated - assuming you graduated at age 24. Again this excludes any ex gratia payments along the way and significant pay bumps attributed to taking on more responsibilities on the job. Clearly, the golden years of making money comes during your late thirties. Extending this beyond the age of 40 reinforces this observation even more: At age 40, assuming your salary remains stagnant at $15,000 a month, it’ll take you only about 6 to 8 years to recover all the income that you have earned over the span of your economic life since graduation, again excluding any ex-gratia payments. In fact, many high performers in this age bracket consistently generate incomes well in excess of this amount, exponentially accelerating this process. One can see the obvious conclusion here. The pursuit of excellence often comes with expensive price tags, to the point where it will even feel like you are trading your waking hours for money. But the good money comes later in life. If you happen to be in your twenties, it is important to nurture a 'superpower' and be extremely good at what you do, even if it doesn’t pay well in the short-term. Work can be a drag. But by giving up too early and 'retiring' at 40, you risk leaving behind a lot of money on the table.

  • Perspectives... from an older friend

    Had catch-up drinks with a much older (more than 12 years) friend that I hadn't seen in nearly two years. Our common experience of having worked overseas led us to talk amongst other things: Money, work, mid-life challenges, investing, investing in real estate, and the state of the economy in China. Economic lifespan. The state of working in banking and finance. It becomes incredibly hard to find something in between. You are either senior management or not. Besides, those who earn up to the S$5,000 range are typically younger folks with 3 to 5 years of experience on their backs. Salaries for banking and finance are often above-mediocre. Those in banking and finance work round the clock with no night or day. You are basically on call 24-7. Regardless of whether you are in the front or mid office, you basically work round the clock, constantly on your phone and replying emails. The markets today are digitally powered with information that move at the speed of light. Singapore today, more than ever, serves the international market, therefore warranting that we work across all time zones. While there are many who still struggle with finances in their fifties, the unspoken truth is that money shouldn’t be a focus anymore at this stage. Grey hairs. Also, people expect you to act your age for the role you are in. When you are an analyst, you are expected to do the grunt work. When you are an associate or director, you lead execution. When you have more than ten years of experience on your back, you are meant to assemble and manage a team, impart knowledge, and on occasion, demonstrate thought leadership and disseminate advice. No more upside... Take REITs for example: investors could make compounded returns by re-investing the dividends, and relying on further appreciation of the share prices because of insatiable demand for space. Over the last year or so, distributions and share prices for REITs have declined quite a fair bit. Higher interest rates have hit distributable income margins but rental reversions are also taking a hit. This is not only the fault of inflation and borrowing costs impacting their own businesses but also impacting the businesses of their tenants, crimping the ability to accommodate the higher rents. REIT managers today have to weigh between higher rents and lower occupancies, or otherwise run them at the same occupancies at lower rents. Not an easy decision. A bleak world... To re-stimulate the economy, we have to rely on the next generation to accumulate wealth and buy homes. For this generation of folks who can’t afford to buy houses, they will simply just move in with their parents. Furthermore, China is also faced with an ageing population, which means that when the older folks pass on, there will be possibly an over supply of housing. It might take at least 8 years for for this segment of the economy to recover.

  • The end of free market principles

    For years, practitioners in the industry have been taught, have understood, and have accepted that equity holders stand behind debt holders in the queue to redeem cash flows of a business. These are the rules of the game relating to the priority of how cash in a business would be distributed, if and when assets are being liquidated. It's a basic principle codified in financial markets theory. But that rule seemed to have changed forever when Credit Suisse decided to write off a huge chunk of their AT1 debt last week and facilitate any residual payments to shareholders. "Protectionism, geopolitical self-interest and state intervention, in other words, seem to have over-ruled free-market principles." - FT By allowing the "free market principles" to take reign and go its natural course, the Swiss government runs the risk of embarrassing a certain influential Middle Eastern shareholder who recently invested in Credit Suisse, and in the process, taking the rap for the bank's current state of affairs. Investors and onlookers would ask, "why bother even doing a capital raise in the first place only to write it all off within months?". There would be a crisis of confidence in management, possibly wider overhanging doubts over stability in the region, including the country's position as a global wealth management hub. And then no one would put money in Switzerland anymore, a cost possibly too high for the government to bear. When the reputation of your country is at stake, all concepts of equity and debt gets thrown out of the window. Bottomline: Rather than adhere by the rules governing capitalist theory, it is far better to offend those who can afford to be offended than to risk a systemic meltdown. Of course extreme situations call for extreme measures. Under the normal course of business, every one is happy to stand in line and play by the rules. Decent wages for decent work, a fair share of the pie for a fair amount of effort invested. Most investors who walk into a share agreement try not to think too much about a material adverse outcome. But when the house is on fire, everything is up for grabs and all stakeholders - equity and debt - will scramble for the exit. I think the uncomfortable truth today, that no one talks about explicitly, is that: rather than fight a war using conventional arms, political decision-makers around the world have found a way to weaponise the workings of financial markets and monetary policies to drive their own agendas, in the process distorting how we perceive value. Any country in world can 'own' another country by simply imposing trade sanctions, ridiculous tariffs, and in extreme cases, confiscate assets - assuming one country is heavily reliant on the other for the import of certain critical goods and services. By creating dependency, you are weakening the bargaining power of the other party, and lesser bargaining power generally comes with lower value. Nassim Taleb also talks about this in his book under the section: "How to legally own a person": For good or for bad, sovereign risk has become even more closely intertwined with equity risk. When you buy a stock or a bond, it is no longer as simple as taking a view on profitability, future cash flows and room for improvements, but also the strategic importance of a company's position in the ecosystem. DCF does not capture all of that. In fact, no amount of number crunching and analysis allow for an accurate appraisal of any company's fair value today, primarily because the so-called free market is no longer that free. Instead of willing buyer, willing seller, the market economy is now to a good extent, influenced by statecraft, driven by the common interests of various governments. The treatment of Credit Suisse's AT1 bonds has also further demonstrated and reinforced how loosely-held and trivial the definition of equity and debt can be when push comes to shove. For what it is worth (as it has always been), value will forever be driven by the willingness of another party to take the asset off your hands at their own free will.

  • Never stop learning

    I have been teaching financial modelling for over 5 years now. But at the first ever class held in July 2018, the delivery was so badly curated that it was clumsy and in my opinion somewhat even embarrassing. I had spent weeks preparing for it, assembling a deck of over 500 slides. In those slides were numerous case studies and valuable content which I had amassed from over 10 years of corporate finance experience. It was by some measure, a work of art. Yet, in spite of those, I received possibly the lowest rating ever for a financial modelling course. Someone in the class even openly remarked, "how can anyone teach financial modelling like that??" Turns out that being a teacher and a practitioner can be two vastly different things. Being good in your trade does not imply that you are good at transferring that trade knowledge. Having years of industry experience does not necessarily mean that you are a good teacher. Even good teachers need training regardless of their age and background. Just as some aspects of your job sometimes needs to be re-learned or upgraded. I recently gave a one-hour workshop on business and corporate finance in Hong Kong to a group of university undergraduates from the Guangzhou Huashang College (广州华商学院). The workshop was part of a three-day immersion program to get the students acquainted with the prospects of working or studying overseas. The flow of the workshop was basically the same content I had been doing over and over again for the last five years at SMU, condensed into a sixty-minute session, and further watered down for an audience with basically little to no working experience. The catch was that everything was to be done in Chinese, which put me at risk of being reduced to a babbling idiot. It might not sound like a big deal, but for me, this was the first time ever that I had to deliver a class (somewhat professionally) in a second language. Sure enough, being based in HK and Shenzhen over the last three years, I have had to communicate and present plenty in Chinese. I had also done cross-border M&A deals in China during my banking days. However, I always had the benefit of a safety net - coworkers around me who could help fill in the gaps. This was entirely different. The aftermath? Not as bad as I expected. Neither was it as smooth as I wanted it to be. But most of all, it was refreshing. The entire experience was a discovery process and a learning opportunity for them as much as it was for me. The point is: When we are in our twenties, it is conveniently easy to commit to learning. Every lead or project is seen as an opportunity to clock some mileage, hone technical skills and sharpen the sword. Practice makes perfect. There is that insatiable thirst for acquiring more knowledge, which leads to opening many doors in the future. When we move onto the thirties, that mileage elevates us to become subject matter experts, but we also become increasingly narrow and selective in terms of the assignments and projects we undertake. Beyond the thirties and into the forties, companies, shareholders and the people who hire you become more impatient and less forgiving. Results get prioritised and learning often takes a back seat. Amidst many lost opportunities and closed doors, it becomes easy to forget the enthusiasm of the twenties, easy to stop learning: Easy to stop learning a new trade, a new product or service, the workings of a whole new industry, take on a new role at work, a new way of doing things, or even a new language. As for the taxi driver in Shenzhen: If someone older than me with a presumably mediocre income and virtually no university education can bother to learn English in a largely Chinese environment, in anticipation that he might need to use it one day to communicate with his foreign passengers, what excuses do we have for not picking up a new skill when the opportunity arises? Never stop learning.

  • Cultural learnings

    As I enter my third year of working for a Chinese company and living in China, it felt apt to reflect on and summarise a few takeaways from a cultural perspective. Gift giving is almost always a norm (and expected) when visiting someone. When in doubt on what to buy, more expensive equals more sincerity. Face apparently is still a big thing. You can leave home without bringing a wallet. Everything you need is stored in your phone - from money to your national ID. You can even buy meat from the market and pay via Wechat or Alipay. This is the power of putting a smartphone in the hands of one billion people and having an incredibly decent mobile broadband network. Buying stuff online is often cheaper than buying it offline or over the counter. The Internet has completely eradicated the need for any human interaction. Why bother negotiating for an extra shot with the counter-top casual banter when you can get discounted deals through an online menu? The catch here is whether you can navigate the complex menu sequence... Patriotism is in their blood. While some of the Chinese people may not agree entirely with the ideologies and methods of their government, they remain very proud of their own achievements and feel a strong sense of loyalty to their country. People all around the world aren't very different. Nearly everyone watches douyin (抖音). Contrary to being an unhealthy social addiction, I find douyin quite intriguing, and an excellent source of entertainment and general knowledge, not only about China but also the state of world affairs. Needless to say, the Chinese media is skewed. But who is to say that Western media and media all over the world is not?. Watch, rinse and filter accordingly. You can live your life without stepping out of the house - getting food, groceries, plumbing, courier, train tickets, etc. This is even more evident after 2020 when every one was forced to stay indoors during the pandemic outbreak. You can also hire anyone to do almost anything from queuing up to valet driving you home when you've had too much to drink. Because everything is transacted online, merchants take consumer ratings very seriously. Any negative comment in the forums can easily go viral and equivalent to being served a death penalty. The guiding principle being: The opinions of one billion people can’t go wrong. The stark income differential between the developing and urbanised areas is probably what keeps quality and service standards high and input costs low. Take for instance the food delivery sector. There are many videos online that showcase how riders - many of whom are in the low income bracket - risk life and limb just to make sure food gets to people’s doorstep on time. They earn only a fraction of a white collar income, but that huge population and wide domestic income gap is what keeps the gig industry going and the domestic economy resilient. The main reason why stuff in China appears so relatively cheap is simply because of its vast population. We know this but still choose to believe that cheap equals “lousy”. You just need to have a discerning eye when shopping for stuff online (especially on Taobao 淘宝). If you can ignore how some of these brands are named, you will realise that there are many places which are reputed for wholesaling high quality white label products for many global upmarket brands e.g. electronics in Dongguan, Guangzhou; furniture in Foshan; industrial parts from Wuxi; textiles from Jiangsu and Shandong region, etc. Everything is “made in China”. The trillion dollar luxury goods market thrives on the fact that consumers like variety and perhaps more importantly, ultimately fall prey to effective advertising. University entrance exams are incredibly cutthroat. Being based in a certain province or city could pigeonhole you into a certain career or an industry for life. As a result, parents often go all lengths to ensure that their kids receive the best education the system can offer. Only the rich can afford sending their kids overseas. Beijing (北大) and Tsinghua (清华) are regarded as the "OxBridge" equivalent, and considered the crème de la crème, at least within the country. There is also a vast difference between a local and a foreigner gaining admission into either of these universities, the former considered more prestigious as the attrition rates for locals are incredibly high. As a matter of fact, the locals don't really care if a foreigner gains admission to 清华 or 北大. Ownership of real estate is still considered a status symbol for many Chinese. As a result, many will do whatever it takes to hold on to their property even if the prices are falling. This trend however seems to be changing with the demographics as younger Chinese are increasingly being more knowledgeable about investing their savings into wealth management products. Happy third work anniversary.

  • Just over two months.

    Over two months here and I've already grown a routine sufficient for baristas to know what coffee I typically order. The speed at which the orders are processed is impeccably fast - it takes only less than 3 minutes to do up a vanilla latte at Pacific Coffee Company at Lippo. Things in Hong Kong somehow move incredibly fast. The shop just below where I stay even knows what I typically order for takeout: Basil pork rice or Hainanese chicken rice. Oh, and Chicken rice tastes slightly different over here, it done slightly Thai-style, nice, but just different. As I grow older, I feel that routine becomes increasingly important. Whenever I am overseas I tend to wake up significantly earlier as compared to being at home. I treasure the moments of making my way to the usual coffee or confectionery place to start the day, regardless or whether it is a working day or the weekend. I enjoy simply just sitting there, relaxing and basically do nothing but unwind. This is very likely a habit had was cultivated early on during the downtimes of my national service days where I mostly hung out at Coffee Bean during the weekends. To date, I spend most my time on the HK island side, occasionally making trips to Kowloon on weekends. I hardly venture north of the area past TST (not sure why). I hear that there are many nice eateries in the area but it can be difficult to get seats especially over the weekends. Admiralty and Central have become synonymous with work. They are nice places to go over the weekends because it tends to be less crowded, but I still find it hard to look for places to sit down for a cuppa. Comparatively, Sheung Wan is a lot better, especially when you venture further south of the island (further uphill). My go-to place is Halfway Coffee which is located along the street selling Chinese antiques. It is frequented by ang mohs (or gweilos at the locals say) and mostly the affluent local community in Hong Kong. Perhaps one of the biggest differences for coffee and general dining here is that prices are way much higher (a black sugar latte sets me back by about HKD 50 or roughly SGD 9, which is nearly 70-80% higher than similar artisanal coffee in Singapore). I haven't tried hiking yet although I have heard much about it but maybe I'll do so towards the end of the year when it's cooler or when I decide to break out of my routine of weekend coffees.

  • Musings from a few interesting people

    Words from a few folks which I had whiskey with today: Not all PE firms are created the same: One of the best things to do is to track all the projects that these guys put money into. Everything they touch just turns from gold to brass. Instead of the “Midas” touch, they have the “minus” touch. Like the Forbes under 40, there should be a separate league table for investment deals called “Forty under 40”: The top forty deals that have an IRR of -40% or less... On China: A lot of private equity return models are broken: When it comes to decision making... Stupid questions asked by stupid people... The world needs enough stupid investors for astute investors to thrive. Investor relations is an art:

  • The perils of a suitcase life

    “There’s nothing for you in Singapore.” China was a huge market and we thought we had what it took to succeed in that market. This was outside my comfort zone, not only in terms of the language but more so because the resources that I had mustered over the last 10+ years at that point of time were all within Southeast Asia - the connections, relationships and appreciation of the culturally diverse landscape. I felt that I knew relatively better how to navigate in Southeast Asia as compared to China. But China as an economy was the largest in Asia compared to the playing field in Southeast Asia. It was hard and impossible to ignore. I made that decision not to re-locate, staying put in Singapore while spending the next 4 years shuttling in and out Shanghai and many other cities, making stopovers in Hong Kong. By early 2020, our startup journey had taken us to Moscow, Saint Petersburg, Seoul, Riyadh, Astana, Budapest...the list goes on. As for the adventures we had over those 4 years, those stories are for another day. I never posted any of those trips on social media. We had travelled to many exotic places and I got to know many people whom I would have not met if we never started this business. More importantly for me, I succeeded in breaking away from the comfort zone I was in as an investment banker, the typical grunt of an employee. While I had picked up most of my accounting knowledge, financial modelling and structuring skills in a formal professional setting, I really only learned how to set up meetings, present ideas and sell when I became a business owner. These are lifelong skills that cannot be taught and follow you around for a long time. Look, the point here is not about the fancy globetrotting or the invaluable lessons learned. There is also no success story to tell. At the risk of being overly blunt and transactional: The business acquaintances and relationships acquired only make sense if you can convert them into fees at some point of time. The cash flows (if any), only sustain you for a finite period, and then you have to look for the next elephant to bag, and the next, and so on and so forth. The truth is we paid for many of these business expenses without getting anything in return. Many people choose to interpret and believe what they see on the outside. It’s not as good as it sounds. There is no glamour in running your own business. It is more like living life in a constant state of uncertainty. And when you are in a constant state of uncertainty, it gets difficult to plan for anything long term. Then at the end of 2020, in a twist of an opportunity, I made the decision to relocate to Hong Kong, taking that uncertainty into a whole new dimension. Over these last two years, many friends have asked me how I cope with living overseas for an extended period of time away from home. All I can say is that it is not as easy as one might think, even for those who are accustomed to frequent traveling for business. When I think about it, the people who travel and live overseas for work generally comes down to three buckets: Those who relocate early on in their lives either for study or upon graduation; Those in their mid-careers who relocate for work as a temporary arrangement and; Those in their mid-careers who relocate indefinitely. I have many friends in the first bucket. They had gone over mostly upon graduation and have called those cities home. Those I know have stayed overseas for easily more than ten years. They had built their social ecosystems and familial support there and did not have to uproot anything back home or had little to nothing to give up. For them, life started overseas. Those in the second bucket are slightly older and had more work experience. They had gone overseas midway into their careers or got seconded as part of a project. In nearly all of the cases I knew, there was always clear visibility in terms of when they were going back home, be it two years, three years or five years. There was always an end goal. Something to look forward to so to speak. Then there are those in the third bucket. I know of very few people who are in this bucket and they are mostly in C-suite positions. I sometimes wonder how they do it. How they manage their families at home is a miracle in itself. You can only truly empathise with this if you are in this bucket. The thing is: When you already have a life back home, relocating overseas for work indefinitely is much harder than it sounds on paper and what you hear from others. A lot of people take it for granted because they either feel that the remuneration package compensates for that inconvenience or they simply just think they are adaptable enough. But when you take a step back and really evaluate the circumstances that could potentially impact you - the distance, the unfamiliar environment, the lack of social and familial support, there is always a chance that you over-estimate yourself. The real question is: Money can only go so far in helping you settle the logistics of moving, but how does one psychologically prepare for and cope for the change to a new environment?

  • Lessons from Singapore Airlines

    Just think about it: Not very long ago, most airlines had been doomed for bankruptcy when COVID-19 brought air travel to a standstill. People were even mocking at the idea of ordering takeaway cabin food at home, selling SQ-branded merchandise and even "flights-to-nowhere". All these seemingly whimsical initiatives were targeted at keeping customers engaged and satisfying the insatiable demands of wanderlust travelers, but most of all, I think it was meant to generate some cash flow, if any. Those flights-to-nowhere were subsequently scrapped due to environmental criticisms from the public but that didn't stop SQ from offering customers a unique dining experience aboard the A350 aircraft (on the ground of course). When the going gets tough, it's not only the bootstrapping start-up companies with the least bargaining power who have to creatively pull ideas out of their asses. Big companies with elephant-sized egos need to do this as well. When the world surprises the hell out of you and leaves you at the mercy of cash flows, anything and everything goes. "What doesn't kill you makes you stronger." Looking back on the last three years, it might be easy to conclude that there is a simple recipe for surviving the pandemic: Just stick around long enough, don't die in the process, and things will get better. But simply "sticking around" understates the numerous organisational and technical complexities that firms have to go through. In the case of SIA, this means re-allocation of manpower resources, deciding which planes to put in long term storage and the costs involved in such an operation (both the tangible and opportunity costs), as well as the means to raise sufficient capital to tide a potentially longer than expected winter. When you are neck-deep in a sticky situation it can sometimes be difficult to see how the longer term picture can potentially play out. Check out these depressing headlines from 2020: Even ECB President Christine Lagarde in mid 2020 said that the pandemic was probably "past the lowest point" and cautioned that any rebound would be “uneven”, “incomplete” and “transformational” - hinting that some industries such as air travel and entertainment might never recover. Well, when the central bank says something, you listen. Yet even so, very few emerge well from this period of crisis. This is not about hiring competent management to fix operational inefficiencies but the ability to weather a sudden economic shock. Moments like these test the effectiveness of a company's business continuity plan. Fortunately for Singapore Airlines, it also has a unique political and financial backing, not many firms have this benefit. To some extent, SQ is Singapore and Singapore is SQ. This leads to another less obvious factor that has contributed to SQ's record profits. Timing is everything. Six months was all that stood between SQ and its closest competitor, Cathay Pacific. That window was sufficient to give any well deserving airline a good head start in cannibalising market share along major competing sectors. If you compare SQ's FY2023 financial performance with the pre-pandemic periods in 2018 and 2019, operating expenses including staff and fuel costs were almost at the same levels, implying that SQ had returned to nearly full operational status. CX on the other hand struggled with mobilising its fleet and dealing with the stubborn re-opening of Mainland China, one of its major revenue contributing segments. When life returned to normal, the dislocation in the supply and demand of air tickets, coupled with the tactical re-opening of Singapore borders six months earlier than Hong Kong / China, was probably what gave SQ the additional bump in profits. Had the Singapore government been slightly slower in its re-opening, we might have missed the boat on capturing tourist arrivals, the perennial fintech festival and numerous MICE events targeting business travelers and conference-goers especially towards the year end. Of course nothing is permanent. Supply pressures will eventually abate which should ease demand and bring down air fares. Unless Cathay Pacific screws it up big time, consumers being consumers will always seek out a variety of airlines to choose from. The key is whether SQ can continue to keep costs under control or will it get complacent from here on. In an interview with Charlie Rose in 2013, Mike Moritz said of Sequoia Capital: "I think we've -- we've always been afraid of going out of business. ...and so we've worked hard on trying to figure out how we make Sequoia Capital endure. And I think that's been the reason why we've been able to do what we've been able to do. Because we've assumed that tomorrow isn't like yesterday. We can't afford to rest on our laurels. We can't be complacent. We can't assume that yesterday's success translates into tomorrow's good fortune."

  • For Gen Z, greed isn't always good

    “They talk about work-life balance. That’s a term I didn’t even know when I was their age. Work-life balance. When I was their age, if there was no work, there was no life.” - Morris Chang There is a huge mindset difference between those in their mid 30s and 40s compared to the Gen Z population, categorised as those born after the year 2000 or those in their 20s who have just graduated. If you are one of those who believe in working hard and earning lots of money for your future retirement or to be financially free, you probably belong to the mid-30s and 40s group. Gen Z doesn’t care for money. Gen Z also doesn’t think that far. Their manifesto in life revolves around "YOLO" (You live only once), a term I first heard only when I spoke to a colleague about the importance of having CPF savings in 2019. “水至清则无鱼” (An old Chinese saying: "Fish prefer muddy waters and avoid clear streams") When Jack Ma was “rusticated” after his speech at the Bund Summit in 2020, I think it might have sent a certain message to the business community about the new rules of capitalism in China. I don’t think he intentionally meant to sound like he was going against the authorities, that innovation isn't afraid of regulation. Some dislocation in the market is always good for entrepreneurship as long as those in the game play by the rules. But the concept of risk-reward is viewed very differently the moment you take away the opportunity for any abnormal upside in a free market. This trend further permeated when the term "common prosperity" was introduced in 2021 as part of China attempting to bridge the wealth gap. What followed was a series of events including the ongoing purge of corrupt civil servants, clampdowns in the private online education and peer-to-peer lending segments. Not that the occurence of any of these events had anything directly to do with the worrying youth unemployment statistics today. But it is interesting to note that for Gen Z, coincidentally, this was a period whereby most of them had started to enter the workforce. They should be brimming with excitement and hope for the future. Regardless, the contagion caused ripples across the industry, essentially discouraging the pursuit of excessive wealth and high incomes, almost similar to imposing a virtual red line on how much one can earn. And people generally stop trying too hard the moment you put limits on how much they can achieve. “The point is ladies and gentlemen that greed, for lack of a better word, is good.” - Gordon Gekko Gen Z looks at money very differently. Aside from graduating into a generation characterised by apathy, most of them are financially cushioned by the wealth of their parents, who are mostly Gen X. Gen Z’s outlook on life and material values are quite different. They are not obsessed with going after flashy items, brands or asset ownership. Why Calvin Klein when you can Uniqlo? Why Louis Vuitton when you can MUJI? And renting isn’t such a bad idea when home ownership is too far-fetched at current income levels. Besides, there is always that option to stay with their parents if all else fails. According to Morgan Housel, the mindsets and lifetime investment decisions of people are heavily anchored to the experiences in their own generation, especially those in their adult life. “The differences in how people have experienced money are not small, even among those you might think are pretty similar. Take stocks. If you were born in 1970, the S&P 500 increased almost 10-fold, adjusted for inflation, during your teens and 20s. That’s an amazing return. If you were born in 1950, the market went literally nowhere in your teens and 20s adjusted for inflation. Two groups of people, separated by chance of their birth year, go through life with a completely different view on how the stock market works:” Because of that, when it comes to the perception of money, what one group of people think as ridiculous might sound totally fine for another group of people. While the vast majority of Gen Z’s parents have put in the hours, sown the seeds and reap the harvest of their hard work, most have also concluded after two or three decades of their working life that earning lots of money is nothing but simply a means to an end. There is no point in chipping your life away and earn so much only to spend it when you are too old and frail to enjoy. In this vein, financial freedom to Gen Z means that I only need enough to survive and get by instead of the need for any passive income from an investment asset. Furthermore, most of these people have been brought up in an environment in which they have been very likely been told to “do what makes them happy” rather than get into a mindless pursuit of money, the rat race. Social media for what it is, also plays a big part in influencing the way they think of lifestyle and money. You can almost live your whole life online in the digital realm. Some people even make money simply just by live streaming (直播) their day-to-day activities! Apparently people pay to watch $^*t like that... So why work the regimental hours when you can make a living sitting at home doing stuff on your own terms? Ironic, but the biggest ultimate sponsors of these initiatives are the parents of Gen Z, the same group of people who believe in decent wages for decent work done. These are just some of the mindset challenges faced by employers today in a workforce increasingly dominated by Gen Z workers. They don’t care for the high incomes. If these people do not find their work purposeful, they leave. If pushed too hard, they leave. They just simply don’t care anymore. There is nothing right or wrong with that way of thinking. But it is the rat race mentality that propels the economy. The rat race makes people to want to earn more and live better than their peers. For good or for bad, it forces creativity and innovation. Today, there is no incentive to do that, no incentive to go above and beyond the call of duty, no upside. They just want to lie flat. You can continue to whip the proverbial horse but you can’t make it go faster. The point is ladies and gentlemen that greed, for lack of alternatives, is good for the economy. There isn’t a perfect solution for how employers and managers should work with the younger generation. Some might say “shut up and listen to your elders and seniors” but I think that would only invite more resistance. However it does help to understand how the post-millenials of today think and behave the way they do. Given the youth unemployment rates and the current state of the economy today, maybe a little dose of “Jack Ma” wouldn’t hurt... Have a great week.

  • The Avocado Bell Curve God

    It just goes to show that even seemingly intelligent humans, when desperate, gullible and possibly even bored enough, will believe nearly everything you tell them and to some extent, resort to illogical behaviour to get what they want. When something good or bad happens, we lean towards seeking answers retrospectively. We look logically for these answers by re-tracing the steps and putting together the pieces leading up to the events that take place. There is usually a connection between the cause and effect. For example, “he is so small and thin today because he didn’t eat well when he was younger”, or “he works in a mediocre job now because he didn’t study hard in school then”. Conversely, we make the subsequent conclusions in nearly every aspect of our day to day lives, like, studying harder maximises your probability of getting good results, or working harder increases your probability of doing well later in life. But whenever the science and logic fails us and things don’t go according to plan, we fall back on, or turn to the spiritual side of things. Humans seek comfort in rationalising stuff that happens to them, both the good ones and bad ones, especially the bad ones. Hence, the existence of the avocado bell curve god, drinking water mixed with the ashes of books, and the wearing of good luck charms, gods in other forms, amongst others. The truth is, sometimes when the good and bad things that happen in life, they happen for no reason at all. Things that reasonable logic and mathematics cannot explain. A winning lottery ticket, contracting a deadly virus, a plane crash, bad timing when making an investment, black swan events, etc. Events that can significantly change the course of one's life . Life gets a lot simpler when we make peace with the things around us rather than make sense of the things around us. “We are so good at justifying things to avoid our deepest fears. That is one trick the mind is really good at.” - Alicia Cramer

  • In the end, it will all make sense

    (Source: X (Twitter), Orange Book)

  • What the whales own matter to the fishes

    The study of capital markets has always been both intriguing and amusing to me. A lot of its theories are backed by mathematics and statistics. But the system in reality is stochastic, complex, and at times even volatile. We can learn from our mistakes or the mistakes of others. History often serves as a good guide for making decisions but no one can guarantee a discrete outcome. Whether it is technical analysis with charts or regression models, the past is never a predictor of the future. With trading stocks, be it day trading or the well-thought through strategies adopted by the large hedge funds, I have always felt that one principle remains consistent: Both smart and dumb money goes wherever the big boys go. Those who got rich from trading think they know it all, but they were merely riding on the shoulders of giants. And so, it pays to know what the whales are doing. Last month, one fund manager became an unfortunate statistic of this system. The letter widely circulated on social media attracted a flood of comments from the online community, some applauding his honesty for admitting his mistakes, cutting losses and returning money to LPs. Others lamented that he should have done better by hedging his positions like any respectable hedge fund. Nevertheless, for someone who has been in this business for over thirty years, this is a huge setback both personally to him and the investor community. One would think that any funds entrusted to a veteran fund manager would be in a safe pair of hands. But reality can be brutal. As one user puts it on Twitter: It only takes one bad month. One wrongly sized bad trade. It just goes to show that what we think we know of the workings involving financial markets do not always hold true. Whether you are managing ten thousand or ten million dollars, in the end, stock prices are driven by the simple economics of supply and demand. It always comes down to flows and the biggest whale here is obviously the government.

  • Welcome to the world's largest gambling den

    "This is the nature of capitalism, get over it." - Kevin O'Leary After nearly two decades of being in finance I still don't think I appreciate how capital markets work. It's not that I don't know how it works. There is a fine difference between not knowing and not appreciating. In 2008, most of the world lost faith in Wall Street: The housing market crash, the financial bailouts, quantitative easing... Sure, a few banks went under and were eliminated, but there was so much greed and risk taking followed by cheap money being flooded into the financial system. The events that followed made a lot of people lose faith in the traditional financial markets as we knew it. And so most of bitcoin and cryptocurrency came into existence as investors started to look for an alternative store of wealth. Cryptocurrency and digital assets were meant to be a good thing. It would be digitally secure and essentially "un-fraudable". But human nature eventually catches up. The series of unfortunate events that led to the downfall of SBF in late 2022, the poster boy for cryptocurrency, just goes to show that the process of trying to do a good thing can sometimes turn out bad, if not executed under the right moral guidance. FTX, once touted as one of the world's largest cryptocurrency exchange used to be valued at more than the NASDAQ. Its recent bankruptcy is a rude wake up call for those who religiously believe cryptocurrency is the future. Look, I'm not dismissing the credibility of crypto assets and bitcoin. But all of the digital tokens that changed hands on the platform had to start from somewhere: Cold hard cash being used to buy tokens. Someone who trades on any cryptocurrency platform ultimately believes that at some point of time in the future, those tokens can be exchanged for cash, ideally at a higher value. The buying and selling of stocks, listed options and contracts for difference work pretty much in the same way. Aside from the issuance of new shares, none of the money in those transactions flow to the company for expanding its business, or used towards investing in innovation or research. It just stays on the platform in circulation amongst the punters and speculators, creating a whole lot of flow volume, which translates to revenue for the intermediaries who facilitate this flow. The secondary market is the world's largest legalised gambling den. Anyone can make a bet on anything. The possibility of a business achieving a certain milestone, hitting a certain profit target, releasing a certain product. And people further make bets on those bets through structuring warrants, put and call options, CFDs, products that don't require people to come up with all the capital, just enough cash margin to buffer any unexpected losses. It's just comes down to finding enough buyers and sellers on both ends of the trade, effectively making the market. As long as those in the game keep the ball rolling i.e. someone is buying those shares and someone else is getting their capital back, prices continue to hold up and no one gets hurt. Sounds like a Ponzi scheme no? All crashes in the market happen primarily due to a crisis of confidence: A whole lot of people just wanting to get out. "Entrepreneurs must be powerful storytellers to win early stage support" Here is why I could never wrap my head around putting money in the markets: Investors (typically) pay the price of a share based on the amount of dividends the company pays in the future (this is essentially the dividend discount model). Let's just say this company one day receives a huge order from a customer which could potentially double its revenue, but unfortunately it doesn't have that much manufacturing capacity. It decides to raise money from shareholders or banks, in which those proceeds would be used to buy or build a new factory, thereby solving for the shortfall in production capacity. Investors then do the math involving the costs and benefits of putting their money into this initiative and decide how much to put in. With this new factory in place, the business now generates twice as much revenue, but it also implies that profits could potentially double, as with the value of the business. Suddenly, the idea of ownership in a larger company, the prospect of the business being a market leader and the reputation of being part of a billion-dollar enterprise with a high market value dawns on shareholders. They start to get carried away with window-dressing and telling fancy stories about the future of the business in order to drive the company's valuation, rather than focusing on product deliveries and execution. This is how modern-day capital markets management looks like. Share prices driven by stories and narratives rather than business fundamentals. If everyone is telling stories then who's telling the truth? Cryptocurrencies, like financial derivative products, also do nothing to drive the real economy. Aside from making up for flow volume and its re-saleability (which again, benefits the intermediaries), there is no real intrinsic value. There aren't enough merchants around the world today that would accept bitcoins or tokens in exchange for goods and services. Cryptocurrency isn't backed by an underlying business. Most bank accounts don't even offer virtual asset wallets that you can use for day-to-day transactions. You can't take out a loan using cryptocurrency as collateral. And regulators around the world are still wrapping their heads around how they should deal with this asset class. Gambling is a well known vice in society. There are always winners and losers on both sides with middlemen profiting from it. But as long as there is sufficient law and order, and no one creates a hole too big that it swallows the entire house, the show will go on. People will continue to speculate on the value of derivatives and bitcoin. No one calls fraud when things are smooth sailing and the pie is large enough to be shared. It just takes one bad egg, one wilful misstep, to screw everything up.

  • My cover letter from 2006

    Hey you lost your bet! He's still here!! - an unwitting stranger over drinks. For the want of money. The world was a very different place in 2006. We were about 2 years out from the SARS crisis, and it wasn't even considered a pandemic. I had completed my final exam papers, presented my engineering thesis and was comfortably placed in a French IT consulting firm, which at that point of time, was being subcontracted by Philips TV to develop a software prototype. The product was meant to be used for all of Philips' clients in the hospitality and healthcare sectors. But I left within 6 months into my role. My motivation for making that leap was driven by The fear of being stuck in an engineering job, working from 9am to 5pm everyday for the rest of my life, and Perhaps more importantly, the want of earning more money by being in banking. That was primarily how the world of corporate finance appealed to me. Fresh graduates bringing home $8,000 a month. No other career could offer that kind of salary, certainly not in the engineering world. But I was not lucky. My grades were less than mediocre and I had been in the 'wrong' field of study. I didn't even know what a Bloomberg terminal was, how to calculate a series of discounted cash flows, or the definition of enterprise value. I wasn't cut out for investment banking. I didn’t get my $8,000 per month dream job but I eventually managed to join the valuations team of an accounting firm. Trial by fire. I distinctly remembered my first day of work at KPMG. All eyes were on me as I walked to my desk. It was only much later in my career that one of my colleagues told me with a giggle: "We were all wondering why you - trained as an engineer - came here to steal our jobs." So, it was with a bit of dumb luck, a vacant analyst position created by the timely departures of a few junior staff, and sheer persistence that landed me into a corporate finance role. I had graduated a year later than all my engineering classmates, which made me two years older than the guys who graduated from accountancy and four years older than their female peers. In short, I was the uncle of all the analysts in the team. For the longest time, no one could understand why I had taken a 33% pay cut from my job in Philips to venture into the unknown from a zone of comfort and familiarity. Many times, I even found myself having to clarify where I worked at previously: "Not Phillip Capital the securities house - Philips, the electronics company..." I was incredibly scared during my first six months in my role. I had come from a working culture that involved going to an office in a tech-park five days a week, sitting in front of my desk writing code for long hours. Finance would be quite different. The closest I ever get to writing code was the Bloomberg functions within excel and perhaps some visual basic. Other than that, I was a fish out of water. I was so afraid that my line managers would deem me unsuitable for the job and ask me to leave. However, what they did do was make a bet that I would voluntarily leave within those six months. This incident was later unwittingly and awkwardly revealed by a stranger who crashed one of our team drinks. I remembered him saying: "Hey! You lost your bet. He's still here!!" It was just one of those things people in banking like to do. It sounds condescending and insensitive, but you pretty much got to have thick skin in order to survive. Investment banking isn't just about getting through the gruelling late nights and delivering on the number crunching. It was also about the harsh and toxic environment that one has to be prepared to put up with for many years to come. No shortcuts, no straight paths. Today, I get a lot of questions on how to break into a corporate finance career whenever I teach at the Singapore Management University. "I don't have any accounting or finance background, how do I get in?" Ironic as it seems, most of the people asking me these questions have better credentials and working knowledge about the field of investment banking than I had during my time. My attempt to learn about the workings of financial markets was through punting in stocks during the bull market, which peaked shortly in 2007 and went bust later towards the end of 2008. I dabbled into the markets not to make money, but more so to experience first-hand how it was like to invest, trade or punt. It sounds unusual given younger people today are more investment savvy and have even more access to investment and trading platforms. Unfortunately, I don't have a straight answer for how to get into an investment banking role. I guess the willingness to work hard beyond the stipulated 8 or 9 hours a day was definitely a plus, but beyond that, it had been challenging to also prove how you could get the job done eventually or the value you brought to the team. For most of my peers it was mostly due to the fact that they were familiar with navigating the culture, having done similar internships before. In my case, it was probably my posturing as the go-to-coffee-boy for all the work that no one wanted to do. Mostly, I attribute most of this to being at the right place, right time and meeting with the right people (天时地利人和). That said, everyone has a different trajectory. In 2006, I had found myself then in a somewhat employees' market in which banks had been actively poaching from the accounting firms, creating a vortex of hiring, and I had been lucky to get dragged into the process. Revisiting "the want of money" Bankers during those hey-days were also raking in deals (most notably from the many S-chip listings) and taking home multi-year bonuses. I recalled hearing someone from one of the local banks earning thirty six months of bonuses. Even if his base pay was mediocre, the absolute quantum still sounded crazy. At that point of time, it was even common for bankers who got less than a year's pay in bonuses to jump ship just because they felt they weren't compensated enough. What a crazy world. To contextualise this to a working person with an average pay, just imagine: Bankers typically earned in a year, the equivalent of what everyone else outside of investment banking makes in 3 to 4 years. It also implies that after working for 7 to 10 years in investment banking, you could possibly retire for the rest of your life. It makes everyone else's job look like a joke. And yet there are still those in the industry who continue to complain about working the long hours and being under-paid. Fast forward 10+ years on, the frenzy of hiring and huge bonus payouts have significantly subsided. But the brutality of the work environment probably hasn't changed. Many fresh graduates today continue to worship the altar of corporate finance, chasing the money and prestige of being accepted into the bulge brackets. It is important to realise that there are many careers out there which pay decently well (but may not pay as "fast and furious"), if you stick it out consistently. It is obscene that bankers are paid so much for the work they do compared to most other careers. Therefore easy for me to say "do whatever makes you happy" or "be open to other well deserving jobs" when I have personally gone through and benefited from the system. Investment banking offers no guarantees At the end of the day, everyone has to make peace with whatever career you have landed into. Many of my engineering-schooled friends are doing very well today, even having not gone into banking roles. Some are in sales, business development, entrepreneurs, etc. After all, not everyone who lands an investment banking career is guaranteed to make lots of money and the promise of working on exciting deals. Most of the day-to-day work in investment banking tends to be iterative (and sometimes even borderline mundane). These include stuff such as research, spreading numbers and window-dressing a company's profile. As a junior or mid-level banker, you'd be lucky to get involved in and be a spectator in deal negotiations. Be realistic, you won't get to be portrayed a hero or a rockstar deal-maker. This is not the movies. However, you will be paid well and most likely be a target of envy for most of your peers who are probably earning only a fraction of your salary. By the time you reach director or managing director level, chances are that you will feel the mighty burden of revenue targets and also deal with the complex politics that come as part of the job. Hopefully during this time, you stay grounded and haven't gotten too used to a lavish lifestyle that will put you in golden handcuffs for the rest of your life. More important than the prestige that comes with investment banking, you really have to love what you do. The dots really do connect backwards. It is not so much about simply earning the big bucks, but whether you also appreciate the dynamics of the job and find a way to sustain yourself in that line of work for an extended period of time. As I look back on my cover letter dated in 2006, I recall of how starry-eyed I was when I applied for a role in investment banking. I had been lucky, yet, at the same time, it also reminds me of how far along I had come. I had applied for the money, saved some, spent some, invested some and lost most of it. I'd gained knowledge of the subject matter, technical skills and the experience, including the network of people, intangible resources built over the years, and spat out by the system. But. No regrets.

  • Hong Kong needs a “Taylor Swift event"

    I love Shenzhen. I like its wide city roads that are peppered with electric taxis. There are virtually so many electric cars on the street that if one pulls up just next to you at the junction you wouldn’t even realise it’s there. The street layouts, traffic lights and well-paved roads resemble something taken straight out of a Lego model. And there are dozens of cafes that serve up a good coffee as well as numerous shops offering spicy Hunan, Sichuan and Chongqing cuisine. Nanshan district, which is home to China’s tech giants and hundreds of budding tech unicorns has a coastline that somewhat resembles Singapore’s East Coast Park. Commonly known as China’s Silicon Valley, Nanshan is characterised by lush trees and shrubs neatly placed on both sides of its roads. Further down the road east towards the Futian district, pockets of greenery weave between towering skyscrapers and mid-century modern styled office buildings. And on some evenings, you can even enjoy the fancy laser light shows against the city skyline with the iconic Ping An Financial Center in the background. Despite its urban backdrop, you can still find traces of history and heritage in the back alleys of the old towns (城中村). This co-existence of old and new is what makes the city unique in its own way, in some ways similar to Shanghai’s Xujiahui district, or Singapore’s Tiong Bahru estate. If not for the Internet restrictions and WeChat Pay / Alipay, the neighbourhoods do not even feel like China but more like an adapted version of Hong Kong. This is just Shenzhen. In close proximity are at least seven other cities in the Greater Bay Area with a similar profile. Each with its own distinctive heritage, each bubbling with its own economic engine, each liveable in its own way, each with the potential to displace Hong Kong as the new regional powerhouse, if not for Hong Kong’s legacy infrastructure and position as an international financial hub. Some might even say this is the dark side of the Greater Bay Area initiative. If you are a frequent traveler to Hong Kong or reside in the city like me, there is a noticeable quietness in Central, which is traditionally home to all the big banks and funds. Even being in Singapore recently, there is an observable contrast to Singapore’s Marina Bay city centre. Standing at the lobby of the Marina Bay Financial Center, you can even feel the difference in energy level and vibe. Part of the quietness in Hong Kong is also attributed to the out flows of travellers across the border. Hundred thousands of people flock to Shenzhen on a daily basis from Hong Kong. Coffee for one is significantly cheaper in Shenzhen. It’s on average RMB 28 vs HKD 45 for a flat white depending on where you get your daily grind. At some cafes such as Manner Coffee, flat whites are going for only RMB 18, and the quality of coffee is no less than decent. Eating in Shenzhen is generally much cheaper as well, not to mention the good variety of both Asian and Western cuisines. Chinese food (all kinds) is undoubtedly more authentic in Shenzhen, no question here. Also, you can get cheap food and groceries delivered to the doorstep at basically any time of the day. The gig economy is extremely vibrant. Meituan is incredibly accessible and affordable compared to Deliveroo or Foodpanda in Hong Kong. Those who struggle with the high rents and suffocating spaces in Hong Kong are finding it attractive to stay in Shenzhen while continuing to work in Hong Kong, putting up with the 1+ hour commute. Bloomberg even has a report on this. Truth be told, Shenzhen is even more accessible than you can imagine. There are abundant car pools, buses, even the East Rail Line (东铁线) on the Hong Kong MTR goes directly to Lok Ma Chau and Lo Wu in under 60 minutes. If you are impatient, there is always the 15-minute high speed rail option departing from the West Kowloon station in Hong.Kong. I have tried them all and the journey (even passing through immigration with a passport) is seamless, despite the crowds and rush hour. Hong Kong should in theory, benefit economically from this flow of people within the Greater Bay Area. But this has been disproportionate, with more people traveling out of Hong Kong in recent years to spend on entertainment and retail across the border. Once known as the “promised land” for doing business in China, Hong Kong has been haemorrhaging capital and resources. The big bucks and high life that people used to be drawn to 10 to 20 years ago do not exist anymore. There are lingering doubts as to whether it is still possible to make good returns from investing in China using Hong Kong as a springboard. Affluent residents are spending meticulously, but are also more careful about flaunting their wealth. I think the music started to slow in 2019 with the protests, followed by COVID restrictions which really broke the camel’s back. Decades of growth and reputation unwound in just a couple of years. These are indeed delicate times. The firms that used to be paying top dollar have moved out or relocated their bases elsewhere. If people are not earning the top dollars, they simply won’t be spending, whether it is dining out, partying or buying property. And no consumption simply means no economic growth. No wonder Thailand and Philippines are jealous about Taylor Swift’s exclusive performance in Singapore, which quite inadvertently channelled tourist arrivals, entertainment and retail activity away to the little red dot. More than just its Canto-pop concerts, Hong Kong needs a “Taylor Swift event” to bring back the buzz and hype to the city. [Photo credits: mine]

  • "Uninvestable" is all about the perception of risk

    Our lack of understanding in how different countries are being governed are rooted in bias, largely based on what we are familiar with and what we are not. Earlier this year in Singapore, I was having a conversation with someone from a bank about the creditworthiness of large state-owned-entities in China. Surprisingly, he actually saw this as a “high risk” business. If the counter-party had been one of the more familiar titans of the finance industry, that sentiment would have been very different. Apparently many still think that the business environment in China is still rampant with corruption and fraud. These same risks that investors are concerned about exist in many other countries as well, including the developed ones. Just take a look at 1MDB, Wirecard and Theranos. I recall a company sergeant major during my national service days who once said, “Soldiers all around the world behave in the same way once they put on their helmets and the uniform.” This is interestingly true. The helmet reminds everyone that: at the very core, we are essentially the same. In a similar fashion, consider a blue-collared production line worker sitting in China, Philippines, Italy, the US or anywhere else in the world that operates, say a machine, in more or less the same way. Because he is human, he experiences both good days and bad days. And on bad days, the quality of his work might be sub-standard. But at the end of every work day, he tries to get off punctually, goes back to his family, and starts his routine again the next day. You might attribute any quality defects to the fact that the product was manufactured in a relatively low cost location i.e. if something is lousy, it is easy to dismiss that it is cheap and “made in XXX”. After all we have been conditioned to conveniently draw trivial correlations between price and quality. Without this bias otherwise, you could have just as easily blamed it on the merchant who sold you the product. But corruption, fraud and quality control are smaller problems in the bigger context of things these days---Earlier this year, JPMorgan allegedly issued an “un-investable” call on China equities as a reflection of its unpredictability and geopolitical risks. All businesses need to embrace policy. Companies that end up on the wrong side of propaganda run the risk of getting cancelled, as can be seen from H&M’s business in China. But being cancelled goes against our ideologies and learnings of the free market, which is: identifying an environment with favourable supply-demand dynamics and taking scientifically calculated risks in raising capital to make money. State intervention is non-existent. For most places in the world, the market economy is the truth. In China, the authority is the truth. There’s no right or wrong. Most of us have simply been brought up imbued with the ideologies of an open economy that we become averse to a scenario in which autocratic intervention could make or break a business. We fear what we do not know or what we cannot control. And because of this, many companies write this off or cast a huge premium on country risk. Think for a moment how different the risk models and perceptions towards raising money (such as the weighted average cost of capital) would be for a domestic investor or owner of a Chinese company vs a foreign company. The assumptions driving the decision to invest should ideally be localized and go beyond the scientific calculations that we have been taught. Instead we consistently fall back on conventional wisdom (which are mostly capitalist-centered) defining what constitutes a 'mature' or 'stable' market return. For example, a common risk management strategy in the West involves diversification i.e. as long as we have enough eggs in the basket, we can always afford a few bad ones. In China, risk management is less of a game involving statistics but more about developing, embracing the ecosystem, staying in alignment with policies, and in the process, minimising (or sometimes even zero-rizing) the incidence of 'bad eggs'. This is inherently a very different way of doing business and ultimately a very different perspective of risk. In a slightly similar parallel, while modern Western medicine adopts a targeted approach towards treating afflictions and eliminating the ‘bad parts’, Chinese medicine tends to be more holistic, treating the entire system, including the patterns of symptoms. Because the fundamental perceptions and understanding of risks are different, many investors struggle with using scientific methods to quantify returns. Shan Weijian summarized this aptly in an interview last year: "Investment is a risky business, and China as a market, is not for the faint-hearted." On closer look, most of the policies are probably not meant to be autocratic or unreasonable. They exist to maintain a certain social stability, encourage economic activity and safeguard certain national interests - as with any sovereign state. Of course the whole inner workings of global trade are made up of many complex moving parts. But at the end of the day, these are just the rules of the game, and risk is just a measure of how well you think you can play that game. Starting a business in the US almost seems like fortune favours the bold. In China it probably feels more like: You better do as you are told. A very different image of entrepreneurship and doing business is portrayed in the West. Many of these are frequently sensationalised with stories of school dropouts creating billion dollar businesses, founders working out of a garage, cavalier businessmen who buck the trend, sidelining authority to grab resources on a level playing field, and numerous books celebrating corporate bravery. My first-hand experience in appreciating this difference was about 18 years ago when I embarked on the NUS Overseas College program in Shanghai. The idea of the program back then was to replicate in China, the “success stories” of entrepreneurship in the US - championing research & innovation and commercialising it. China at that point of time was less interested in leading the charge on technology and chose to prioritise large scale infrastructure investment and market reforms around reining in foreign investment. Some of the best businesses at that time weren’t centred around tech but the seemingly more boring and less sexy sectors. It was a very different economy and no one in the cohort had the slightest clue of how to adapt the program objectives to such a market. We were all learning along the way (摸着石头过河) from attending business meetings, fraternizing with colleagues, all the way down to getting visas and negotiating the rent on the apartment. We would later on also learn that the strategy of navigating in China (which probably still applies today), wasn’t so much about being the smartest guy in the room but more about handshakes and being able to connect the dots. Ideas and intelligence are nothing without endorsement. As such, individuals and high achievers who are used to thriving in a merit-based world and expect to use their minds to blow everyone off their seats will often find themselves stumbling in such an environment. Also, all the most important decisions are made centrally. There is almost always either a single decision maker or a small trusted circle of influence (almost mirroring the CCP style of governing) or if you like, using different share classes in a more western centric context. Language is culture and culture is language. Being effectively bilingual might be sufficient, but being able to speak the language does not automatically imply that you can assimilate into the culture. As with many cultures, there are almost always subtle undertones in both casual and professional banter between people, which is why as effective as Zoom and video meetings go, nothing can truly replace the relationships built with in-person meetings. Most of us would later on in our jobs apply these valuable learnings when we took on regional roles or help overseas and local companies in their expansion within China. Starting and running a business wasn’t the same as how most of the world saw it being done in the case of Facebook, Google, Apple or Amazon. The venture capital ecosystem in China didn’t really take off until maybe 10 years ago and the check sizes weren’t that large as well. Most of the time, it takes years for a company to grow, often staying in plain sight, having the right handshakes, playing by the rules of the game, and perhaps more importantly, having very very deep pockets. As you are reading this, the geopolitical and macroeconomic landscape is still constantly evolving, and we are still learning. There is certainly much more transparency today as compared to before, but the perspective of risk will continue to be an ongoing education process, and many investors and corporates seeking to do business in one of the largest economic powerhouses in the world will eventually need to find a way to balance expectations and reality.

  • “Don’t waste time on the WACC” what I constantly tell the folks in my practical valuation and financial modelling classes. I sometimes feel bad for saying this. But I see myself as a practitioner of valuation and finance. As far as finance theories go, 90% of the people I deal with don’t understand the academic workings of capital markets. Even if they do, most deals are done largely based on the “directive” of someone higher up. The consequences, good or bad, are irrelevant to those who do not have skin in the game. I once worked on a deal that was priced based on a valuation report that had been outdated for at least two years. The numbers were stale and these figures weren’t even related to discount rates. These were input costs e.g. construction costs, equipment prices, etc. This deviation wasn't significant but the project sponsor simply refused to refresh those numbers because they didn’t want to raise any eyebrows when submitting the documents to the regulators. Do you really think that adding up discounted cash flows will help you decide whether to invest or not? Chances are, even before running the numbers, you most likely have already made up your mind. You are just looking for enough agreeable accomplices, or a scientific way to justify the decision to yourself (or someone else) - just in case you end up with an egg on your face. Don’t get me wrong. I have nothing against finance theories. People often misunderstand the objective of valuing a business as the end result of a series of carefully curated mathematical formulas. In reality, the process of doing valuation is more important than the result. As far as the weighted average cost of capital (WACC) goes, the result of combining the cost of debt and cost of equity is only as relevant to the extent of how you are trying to raise capital. And I’m not talking about the proportions involving the amounts of debt and equity. I’m referring to the nature of those capital. A large multi-billion asset manager that buys public equities will have a very different expectation of investment returns as compared a private equity fund, even though their cost of funds might be roughly the same. Fundamentally, their investment mandates are also very different, and because of that, the way they approach valuing a business differs. CAPM models are irrelevant when I want a 30% annualised return on investment. And who cares about the “optimal debt-to-equity ratio” when I am confident of gearing up the company on cheap debt? We also adapt the dividend discount model to derive terminal value. The math is sound. The irony here is spending the bulk of the work digesting profitability, working capital, capital expenditures and what drives the cash flows for the first five to seven years, only to cast approximately 70% of it into the terminal value, which is ultimately driven by just one year of cash flow data, a discount rate and a long term growth rate (which I always felt was somewhat arbitrary). Again, I discredit the finance academics too much by underplaying the way we look at valuation. The theories of financial markets that are taught in schools are robust. But most of the ways in which we learn valuation and deal structuring originated from the West - leveraged buyouts, senior debt, subordinated debt, junior debt, mezzanine debt, etc. We have fanciful financial jargon such as ‘bullet’ repayments, ‘balloon’ repayments, cash sweep, debt sweep, cash flow waterfalls, valuation football fields, etc. We also have all these funky methodologies relating to how to accurately price an asset: Two-stage DCF, three-stage DCF, Adjusted Present Value, Merton Model, Economic Value-Added, etc. Most people in Asia are less sophisticated and more sentimental: I’ll do the deal if I like you. I know you got my back when shit hits the fan. Full stop. Try putting a price tag on that. So does this mean that we abandon the math behind business valuation? Should we avoid building financial models at all? I don’t think that’s possible. Financial models exist to allow us to simulate an outcome of a decision based on certain parameters, perhaps more specifically, those parameters which potentially result in losing money. By varying those parameters, we test our tolerance towards uncertainties in the forecasts, the thresholds of our risk appetite and also how far we are willing go in order to get the deal done. But there is also another more important aspect of building models which is highly underrated: Gaining a deeper insight into the inner workings of a business. Spreadsheets help facilitate the way we organise and analyse data. Using Excel, we can easily work out price x quantity over a period of time. By linking up the various cells in a spreadsheet, we are embedding business logic into meaningful numbers. And by iteratively questioning and challenging the underlying assumptions, we are subconsciously forcing ourselves to understand what really impacts the revenue and the costs. There are so many factors that can drive a business. Sometimes knowing what drives a business is more important than the outcome of its financial model.

  • I am just a brick-layer.

    “Rome wasn’t built in a day but they were laying bricks every hour.” "The problem is that it can be really easy to overestimate the importance of building your Roman empire and underestimate the importance of laying another brick. It’s just another brick. Why worry about it? Much better to think about the dream of Rome. Right? Actually Rome is just the result, the bricks are the system. The system is greater than the goal. Focusing on your habits is more important than worrying about your outcomes. Of course, there’s nothing necessarily impressive about laying a brick. It’s not a fantastic amount of work. It’s not a grand feat of strength or stamina or intelligence. Nobody is going to applaud you for it. But laying a brick every day, year after year? That’s how you build an empire." [Excerpt from James Clear] I've seen too many people attempt to be "heroes" in their organisations. They seek the recognition, adulation, whatever you call it. But a five-minute fame is short-lived. At the end of the day, it is about whether you and the company can bring home the bacon. That's all that matters. In a fast moving and digital world that seeks instant gratification, patience and foresight, are two highly underrated attributes amongst the young and inexperienced.

  • The fundraising process (Part 4 /4)

    [This is the final article in a 4-part series of articles on fundraising] Roadshows Formal investor roadshows work well with large and mature funds and companies. This is largely because the people showing up at these meetings tend to be already aware of the fund managers and investor education is minimal. If you have worked in an investment bank, you are probably familiar with ‘non-deal roadshows’ — which is basically a short briefing with prospective investors to introduce the company. No formal communication of offers are made at these meetings though there might still be interest and queries on the company’s future direction, strategy and whether they are exploring the idea of raising capital. The same way pretty much works with funds. Unless you are an established fund manager, the first step of any fundraising is almost always investor education i.e. to get the word out and let everyone know that you are in the market. A few basic approaches are: 1. Curating a fund presentation deck There are no set guidelines, no ideal pitchbooks. Ultimately when you bring your deck into a meeting, investors will see what they like to see. I personally recommend no more than 15 pages: 30% strategy, 30% team, 40% case studies and track record. If you have additional slides, chuck them into the appendices. Many GPs tend to overload the slide deck with generous servings of macroeconomic and industry data to try and “educate” investors, painting a rosy outlook of the geography or sector. I think many LPs will not say this but don’t you think that as large institutional money managers, they’d have good access to all that macro research? Case studies on the other hand can be relatively more effective as they are personal, relatable and demonstrate more credibility for the presenter. The best deck I’ve personally seen so far was at a face-to-face meeting in which the deck comprised of only two pages showing four case studies, each case study highlighting three metrics (i) entry equity (ii) exit equity and (iii) exit multiples. A 1–2 pager teaser also works just as well for less formal or extremely brief meetings, or if you are sending to preliminary prospects. 2. Leverage social media, expound thought leadership Social media platforms such as Facebook and Twitter used to be associated largely with casual and informal information shared by our personal contacts. Today, this is very different. Social media has become a ‘broadcasting’ tool to showcase not only personal experiences but also professional updates — a career move, promotion, transition into a new role or even starting a new venture. Thought leadership articles such as a written publication on a particular topic or subject can be useful in kickstarting the fundraising process. Write about stuff related to your experience, background and relate them to your investing strategy or industry. While it might all appear to be academic, this can be effective in piquing the interest of your professional circle. 3. Conferences and speaking engagements Investment focused conferences (especially those that have a strong focus on private equity and venture capital) have been fairly effective in elevating publicity for new funds coming to the market. Speaking and sharing your views on a panel discussion is another way to demonstrate thought leadership to the investor community. Because some of these events are covered by media, there is good chance that your new fund gets mentioned as part of the news reporting. In addition to that, many LPs typically also attend these events to get acquainted with new funds or share their perspectives on the macroeconomic outlooks as well as where they are allocating capital over the next 2–3 years. Some conferences also offer 1-on-1 meetings with other delegates at the venue, so look out for these features when choosing which ones to attend. While mass events may not be in the format of your traditional roadshows, they serve as an excellent non-transactional platform to meet and engage potential investors and set the stage for a more formal and orchestrated meeting down the road. 4. Enlist a reputable figurehead Getting a publicly renowned senior professional on your fund’s advisory board is a good way to reinforce credibility and galvanize initial interest amongst potential investors. It also aids publicity depending on how influential your figurehead is. However, many new fund managers equate the presence of a senior figurehead to a successful fundraising i.e. “If I have the former minister on my advisory board, LPs will invest in my fund”. Unlike the initial public offerings in which retail investors flock to buy shares of the company upon the entry of a large cornerstone investor, private funds people are not discerning and will still place emphasis on the executive team’s operating capability rather than the reputation of a few non-executive industry influencers. Much like any fundraising exercise, it is important to ask “what does this person bring to the table?” and “how does he/she create value or fit into the overall investment strategy of the fund?”. Too many people overplay the publicity card, forgetting that real substance is in execution. 5. Create a digital profile Don’t undermine the importance of a digital identity. The ease of access to the Internet these days make an online profile really easy to set up. It doesn’t cost a lot of do up a simple corporate fund website even though you have nothing to show for at the beginning. Sometimes, a website isn’t so much as to showcase (or show off) track record but for establishing some form of legitimacy. Start a corporate LinkedIn page, get on Twitter, and fill them up with content. Good things take time to accumulate and not before long, you’ll find that your fund’s digital profile and credibility will be enhanced by the fact that it has ‘been in existence’ for some time. Closing thoughts It is true that many institutional LPs do not bank with new funds coming to the market. But don’t get too caught up with the fact that you are a ‘first-time fund’. Many large PE/VC shops started as a first fund. Perhaps one of the things that many fund managers do is to focus too much on getting the money in and forgetting about building the core business — which is to identify and seek out good companies, invest in them, and then actually selling them or exiting those investment at a decent return. The process itself looks blatantly obvious but it is always not at easy as it sounds. "Most big recent successes (Microsoft, Apple, Facebook, Google) were started by people with skin and soul in the game and grew organically-if they had recourse to funding, it was to expand or allow the managers to cash out; funding was not the prime source of creation. You don't create a firm by creating a firm; nor do you do science by doing science." - (from the book, Skin in the Game) And therefore by extension: You do not start a fund by simply just raising a fund. If you actually need OPM (other people’s money) just to start a fund, then maybe you shouldn’t be raising a fund at all. Good ‘first-time’ fund managers know an opportunity when they see one and moblize their own (financial) resources to invest even if there are no LPs present. Real track record ultimately speaks louder than marketing pitches and beautiful presentation decks. If you can demonstrate lucrative returns on projects, this is effectively tangible proof that the your team and investment strategy works, and institutional money will naturally come. Starting a fund can be a costly process — no different from launching a start-up. It will not be easy, so do sufficient homework before taking that leap. Learn from the experiences of others and always remember that the best way to sell is to show that the product works. (Read Part 3/4 on structuring)

  • The stupidest 'annual meeting' ever held

    I have been through corporate budget planning processes. They can be quite uncomfortable. Some of my colleagues used to comment that the numbers keep going up every year, recession or not. The numbers usually involve an estimation of the revenue opportunity based on current pipeline and their probability of closing. In some cases, revenue shadowing is being applied, especially when a huge client is being serviced by multiple parties within a bank, a relationship manager, an industry specialist and a product guy. This "30-year" plan was charted out in what was supposed to be IJK's annual meeting. in 2018. Looking back, this has to be one of the most ridiculous budgets and firm targets ever to be drafted. It's nice to have big dreams and ambition, but it's more important to stay real and keep your feet on the ground. Also, this "astronomical" plan also serves as a gentle reminder to never listen to dubious people whose credentials and experience are questionable.

  • A re-designed work desk and a new way of life

    Day 4 of Singapore's so -coined "circuit breaker". This is how my re-designed work space looks like. My daily routine has totally been disrupted. I used to frequent the cafe that's near my place around 8-9am in the morning. I would sit there to start the day reading news, emails and top stories from the night before. Depending on the morning schedule, I could sit there for hours right up till lunch. These days I spend the entire mornings at home. I think this is a very trying period for many people. These are very uncertain times. Sure, I've been through economic uncertainties - the global financial crisis in 2008 which saw 100+ years-old Lehman vanish, the Eurozone crisis in 2011 and the oil supply glut in 2015. These crises were mainly driven by financial markets. People were nervous, some lost jobs and there was a lot of jitters in the office at times. So back then as an employee, I just sat tight, kept my head down and did my work. It was tough and everyone knew bonuses would be bad, salary increments would be crimped. But this time it was different for me. This is possibly the very first time I am experiencing a worldwide financial crisis and pandemic as an employer / entrepreneur. I worry not only about my own cash flows, but also payrolls, business expenses and also how the world will return to normalcy in 6 months, a year, maybe more? I keep wondering how this pandemic will change the way we do business, how it will affect cross border business travel and many others. And maybe for the first time, I truly understand how the sole proprietors out there and the marginally paid front line workers who live month by month are feeling. That sense less of helpless-ness and uncertainty that looms. Just last week, I overheard a young chap on the bus sitting behind me talking: I was supposed to have gotten that restaurant job... They were reviewing my salary but after the circuit-breaker announcement on Friday afternoon, they came back and told me they not hiring anymore. My wife also just lost her job last month, so I just need to find something to do for this month, maybe food delivery or something... The cash crunch is real for many. It's also creating a lot of tension for people. After I alighted the bus, I could hear another random person on the street arguing with someone over the phone. Fortunately the band aid here is that the government is giving discretionary payouts for low income families. I personally don't think it will be enough but I also believe that they are trying their best. This one month of circuit-breaking will be a big financial set back for many people and businesses, even with increased food delivery measures for F&B operators. It'll also be a game changer for the world in terms of how individuals will manage themselves and businesses will interact with each other. To be continued.

  • More focus on cashflows, not discount rate

    TLDR version Discount rate is investor-driven. Every investor has different expectations on returns, which implies the discount rate is subject to bias. The CAPM model for deriving cost of equity is historical-looking and based on the perspective of a fully diversified investor. As such its relevance to the future and the target company must be taken with a pinch of salt. Don't neglect the importance of analyzing future cash flows when using the income approach. Discount rate isn't everything. Most analysts and associates that I know tend to get very caught up in the math and precision of calculating the discount rate when it comes to doing discounted cash flow valuation. I have a healthy respect for the work and research that has gone into developing the industry standard for the discount rate or WACC (weighted average cost of capital) - which is extensively used by most people in the world of finance. However, in reality, I don't see why any investor should dwell too much on the accuracy and precision of the discount rate - especially when it comes to valuing deals in emerging markets. Warren Buffet summarizes this aptly: "Volatility is not a measure of risk. And the problem is that the people who have written and taught about volatility -- or, I mean, taught about risk -- do not know how to measure risk. And the nice about beta, is that it's nice and mathematical, and wrong in terms of measuring risk. It's a measure of volatility, but past volatility does not determine the risk of investing." WACC as a discount rate It reflects returns expected by all the stakeholders in the business. Debt holders get their returns in the form of interest and principal, while equity holders (shareholders) get their returns through dividends or whenever they sell their shares in the company. The model behind quantifying risk and returns are incredibly correlated with share price movements as public markets provide the most visible and transparent form of valuation. The theory is that: The share price of a company generally moves in tandem with the overall market. The riskier the company, the more the prices deviate from the benchmark indices. Risk in this case is driven by the industry dynamics as well as the amount of debt the company holds. More debt means more risk and therefore more share price deviation. The beta in the capital asset pricing model tries to quantify this. There are a number of factors that go into the calculation of the beta: Choice of company and market benchmark to compute the data points Relevance of the company being selected for the comparison Sample duration (1 year or 5 years?) R-squared of the dataset Assuming that you can accurately triangulate the above datasets, the outcome of the analysis is still inherently based entirely on historical data, which we already know, cannot be used as an accurate basis for predicting the future. Comparison is the name of the game in valuation. The industry-standard for deriving the discount rate involves comparisons with market benchmarks such as government bond rates, indices and comparable companies. In layman terms, what this means is: "If I invest in a similar bond or financial instrument and get a X% return, why should I invest in you for the same?" The discount rate for companies are priced at a premium because they are perceived to have higher risk than a certain market benchmark. In most cases, this is pre-defined as the expected returns from putting capital to work in a mature and diversified financial market with the following attributes: Little or no history of defaults on sovereign bonds; Triple-A rated by credit agencies A stable political governance framework (a possibly contentious assumption under today's incumbent president) and; The existence of a highly liquid and transparent equity capital market. The price movements in the markets are also dominated by different investor profiles: Hong Kong has been traditionally seen as the capital markets gateway for companies with significant exposure to Greater China, while Singapore is noted for its position as a "safe haven" for wealthy asset managers hungry for yields, making the listing of real estate investment trusts ('REITS') hugely popular with the its exchange. Likewise, the companies listed on the ASX, TYO and KRX are also largely shaped by the their home country's trade and industry dynamics. The resulting beta calculated from each of these markets will be to a certain extent, driven by the largest companies listed on the respective exchanges. An appropriate benchmark for a mature market? Most firms continue to use the US market as the benchmark. Research states that this is approximately 5.23%. Is a "mature market" in Asia - one which has stable financial and geopolitical regime - be compared and likened to the US? Can we equitably also say that the returns for investing in a mature Asian market are also 5.23%? Take Hong Kong for example: It is a key and unarguably mature financial center in Asia, constantly perceived as a gateway to China. In the last couple of years, the city has also been caught in the epicentre of social unrests stemming largely from geopolitical factors. How does one marry the two to derive the equity risk premium in a market such as HK? Can we appropriately coin HK as a stable equity market? For a foreign business looking to enter Asia/China, would you use the mature market risk premium as the basis for your budgeting calculations? Risk is ultimately a game of probability and uncertainty, and not volatility. Uncertainties are driven by external factors such as geopolitical events; while internal factors refer to the company's business plan which drives the visibility of future cash flows. In a period of significant uncertainties, the application of the discount rate becomes less relevant. Additionally, every investor out there has different appetite for risk, and these are shaped by their degree of understanding and comfort levels in the business and the market it operates in. Every investor who receives a pitchbook of a company profile knows that the valuation number in the deck is whatever the banker wants to portray in order to win the mandate. The discount rate is irrelevant. A smart investor knows that validating the DCF valuation presented by the banker takes more than just a meeting but a deep dive into the operating drivers and free cash flows. Rather than spend time dissecting and defending the WACC, you are better off analyzing the company's underlying fundamentals. Most business meetings involving pricing comes down mostly to market multiples: P/E ratios, EBITDA multiples, EV/Sales. These ratios are intuitive, easily applied and comparable across geographies and businesses. It may not be rocket-science accurate but at least everyone sitting in the boardroom has sufficient understanding of the literature to make a decision. In some cases, valuation can also be totally irrational. Investors will acquire a business 'at all costs' to gain a foothold into the lucrative markets of Asia regardless of what the discount rate shows. It makes the WACC calculation sound like a bunch of pig latin but that's the reality of asset pricing, especially in emerging markets. There are still many merits to understanding a company's cost of capital (read also my article on DCF and LBO). Cost of capital is important in capital budgeting and knowing the limits of your borrowing capacity. Unless the most important stakeholder in the room (which most of the time happens to be your client) asks for a scientific breakdown of the WACC, you'll find that most of the time, the discussions around valuation are going to be on cash flows and market multiples.

  • Lessons on money

    Inspired by a tweet that I'd read elsewhere, I decided to adapt the content and pen this. Best way to solve money problems at home is simply to earn enough. Make enough money and you'll never have any disputes. Use credit cards for day-to-day expenses. They rack up a ton of points which can be used towards discretionary shopping. Doesn't matter how much you save for retirement - the moment you stop working, you'll worry about running out of money. Better to spend money on stuff that you like than spend on stuff that you don't need. Eating out does not imply a luxurious way of life. Some people call this the "rich life". We splurge on eating out but save on fancy houses, cars and other stuff. Property today is no longer a good store of value. There are numerous costs - agency fees, duties, illiquidity, uncertainty over its appreciation in the long term. There are much better alternatives out there to give you a steady 5-6% annualized return over 20 years. Educate yourself on where to put your money. Financial markets are way more sophisticated as compared to 30 years ago. Today we have the ability to invest in stocks globally, a wide range of ETFs, index funds, etc. Worst way to earn an income is to work for a living. Learn to develop multiple income streams as you progress in life - the old school saying of "get a good education, get a good job, start a family, etc..." is out-dated. Invest in yourself. Wealth will take care of itself after that. Don't underestimate the power of compounding. A single investment (no matter how small) can change the course of your finances drastically. Aside from learning how to manage money, learn how to write and code as well. Sales is everywhere - learn how to sell and money will take care of itself. Money will only motivate you so far. If you are not doing the things you love to do, you'll burn out. 100% guarantee. The moment you feel that you pay someone more than what they owe you, you'll most likely end up spending the bulk of time chasing them for what they owe you. Most people who trade stocks lose money. Don't get sucked into speculation. The minute money is too easy to be made, it's probably time to get out. 99% of people who post images of their income online are not telling you something. Really rich and secure people don't flash their wealth and call themselves rich - not unless they are trying to sell you something. People who tip you off on a stock nearly always have something to gain from doing so. Don't be stupid and listen to everything they say. Use your own discretion to decide for yourself. Most of my losses are attributed from listening to others. Don't be envious of those who are ahead of you. You don't know what they've gone through. Bankers are not your friend. They do not care about you. Relationships are booshit. They are only as nice to you as the amount of assets you are banking with them. Don't keep too much of your assets in cash unless you know how you are planning to use it. Invest, even if it is a small amount.

  • What's good for you may not be good for me

    More than ten years ago during my early banking days, I was chatting with a friend over lunch. At that point of time, I had just purchased my house and the economy was gradually recovering from the shock of the 2008 financial crisis. In the midst of our random conversation, the idea of living debt-free came up and I said to him: "My ultimate objective is to pay down all the debt in my property as fast as possible." He sounded surprised. Being in banking and "living and breathing" finance day in and out, he had expected that we understood the concept of an optimal capital structure, which meant that for the firm or investor, returns could (and should) be maximised by the use of leverage, assuming that cost of leverage was cheaper. As a fledging professional in finance, it sounded stupid that one would not make use of this to improve your investment. We had also just emerged from the US mortgage crisis at that point of time, and central banks around the world had launched what was called “quantitative easing”, which kinda meant cheap money for all. Governments all around the world were basically throwing money into the economy to stimulate consumption and investment. Leverage had been cheap. In those years, the trajectory of the Singapore property market also favoured this hypothesis, allowing many people to maximise their returns in real estate investment. In short, any fool could make money through property. The construct was based on a few simple ideas: Real estate has traditionally been a good store of value. In fact in Singapore, one could potentially even make outsized returns. Cost of borrowing is low. The Singapore government also did a relatively good job of maintaining the city’s status as a prime financial center, attracting a lot talent, which in turn encourages foreign investment and economic activity, which again in turn translates to lots of liquidity chasing investors and home buyers' money. Employment stats are healthy. A stable socio-economic environment allows the working class to comfortably service their mortgages. All else being constant, assuming a steady increase in property prices, even the average working household can be a millionaire on the books after 30 years. Because it seems like a no brainer, a lot of people are puzzled at why I do not want to put more money to work in real estate. We bought our house on the secondary market in 2011. It was a relatively pricey purchase, especially when you compare it with the remaining leases and state of facilities of the new developments. We could afford to buy the new developments, and on hindsight, those would have also possibly paid off more handsomely today if I had "flipped" it in the market. Had I taken leverage, the returns would even be magnified. But I did not regret my decision: If you own one property (assuming you need to stay in that property), it's almost impossible to achieve outsized returns i.e. if you sell high, you have to buy high. Fortune in property investment only favours those who have more than one property or can afford to stay 'homeless' after selling their house. The house that I live in is within less than a 2 km radius from my parents and parents-in-laws i.e. they are never too far away to visit. The nearest MRT station is only a 5 minute walk (both ways once the Thomson East Coast line is open). In addition, I have direct buses to any where in the city area. And perhaps more importantly, because of these, I never need to set aside a hefty budget for owning a car. There is good food all around - from the cheap hawker fare at Tiong Bahru market to artisanal coffee. Unlike most, I do not need to ‘travel’ and queue for these good food. They are basically just around my hood The commute to the CBD takes me no more than 30 minutes door-to-door. Extremely convenient when I need to schedule meetings in town. Sure enough I have the options of (i) paying off my home loan or (ii) re-levering to cash out some equity, but I see my current mortgage amortisation as a ultra-long-term rental arrangement without having to worry whether or not the landlord will jack up my lease and chase me out. Buying or investing in a big house would have probably worked the same way too. We would still have solved for having a roof over our heads and potentially cashing out a healthy profit in the future. But going back to my first point above: when you sell high and cash out, you have to buy high as well. Cash and the peace of mind is the oxygen of independence. “The difference between what someone suggests you do and what they do for themselves isn’t always a bad thing. It just underscores that when dealing with complicated and emotional issues that affect you and your family, there is no one right answer. There is no universal truth. There’s only what works for you and your family, checking the boxes you want checked in a way that leaves you comfortable and sleeping well at night”

  • People produce their best work...

    I used to played a lot of basketball in school. Basketball is a fast-paced game that embeds a lot of strategy. A team of five on each side can come up with numerous ways to score within a 24 second time frame. Everyone on the team has a role - the point guard, the power forward, and the center. Street basketball sometimes involved three-a-side on a half court, and given my height I was always told to play the center position. The center position was important. When you are on the offense, the center serves as a back-up to do a rebound if the point guard's shot is off or if the power forward needs support while doing the lay-up. When you are on the defence, the job of the center is to be the sturdiest pillar under the net, blocking every shot that comes your way and turning the play over. But I hated playing the center. It was a boring position: standing under the net, constantly looking up and pivoting around a 1-2 meter radius. Sure enough I might be able to get the rebound most of the time but there was not much fun in catching the ball and then passing it on almost immediately. So I always preferred doing the layups, occasionally shooting from the 3-point line, mainly for variety. I would sometimes get told off for not staying in my position. I wasn’t trying to be ‘showy’ or anything, but simply because I enjoyed the momentum and dynamic game play as compared to relatively standing still. This ‘rigidity’ took out a lot of the fun in competitive basketball playing and I eventually found my way in athletics. Much later on, I realised that a lot of school teams select their center positions primarily based on height. The idea was that even if that person had no ball-sense but had the height, he could be trained to do what he was supposed to do. The grunt of the firm The running of businesses, especially for employees, unlike a basketball game, may not be that enjoyable. But like basketball, companies need to assemble a spread of people based on different functions and positions - rainmakers, executors, administrators and grunts. Last week, I had someone in the office telling me how frustrated she was over doing something she felt was unnecessary and that the exercise yielded no value. “I don’t like what I do, but I have no choice.” Many employees don’t like their day jobs but a lot of them in this category feel disgruntled primarily because the work is not fun, they don’t see the point of what they are doing and often perceive it as stuff that needs to be done in order to report to the higher-ups. This employee was the grunt of the firm. And despite her lack of experience, she was generally good what she does - accountable, hardworking, and diligent. She does what she is told and sometimes goes the extra mile to get it done even on a weekend. Now and then she wants to be able to see the big picture, the significance of what she is doing and be able to learn something in the whole process. But the reality is that, sometimes the things we do at work that seemingly make no sense need to be done because only those with real skin in the game says so. Such is the reality of a lot of working environments. I don’t like playing the center position but the team simply needs someone there to just hold the line. Sometimes a small nudge in the mindset can change the perspective of how people can approach work and carry on their day-to-day jobs. As part of any job, sometimes it is unavoidable that you have to do the things that you don’t like to do. Because a lot of employees don’t condition themselves to seeing things this way, they often get upset, feel unappreciated and eventually leave. Employee attrition can go down like a negative spiral and be a big problem for companies. The right fit Managers can obviously do a lot more to understand the attitude and personalities of their employees. Too much focus is placed on hiring for skills rather than personality. Sure enough, a lot of companies include “cultural fit” as part of their hiring criteria but in today’s context, remote working and high employee turnover is increasingly becoming the norm. In the past, “right fit” means placing someone in the organization who would ideally jive with the rest of the team. In companies whereby departments are constantly being refreshed with new faces, it can be difficult to foster any real camaraderie. I once overheard a senior colleague in an interview asking a potential hire: “Are you prepared to work long hours?” It got me curious because I wondered what response he was expecting to hear. If the candidate gave a brutal reply insisting on doing regular hours, would his honest preference imply a lousy fit for the company? And if he/she answered ‘yes’, wouldn’t that be pretentious? As hiring managers, what are we really trying to look for in a candidate's response when we throw them questions like these? Just as all basketball teams want the tallest, fastest and the best shooters, all companies want the most hardworking, the most resourceful, and innovative people (ideally at a fraction of the cost). In a certain extreme, companies simply want corporate slaves working in a manufacturing sweat shop. This is mathematically speaking, solving for maximum P&L but does nothing to improve corporate culture. To make it worse, the Internet has also virtually created a 24-hour work day, resulting in a term called neurofacturing, which basically refers to the modern white-collared jobs involving technology and brainpower. The Atlantic has an interesting article that talks about why people spend all day at the office working. Do candidates who claim that they are willing to embrace the long hours make better employees? The problem with HR Companies tend to be somewhat myopic when hiring, focusing on either the highest "neurofacturing capacity" or filling immediate human resource gaps such that they almost always overlook the candidate’s interests and ambitions. After all, why does it matter? Just think about it: How many of the interviewers that you’ve met previously really took a genuine interest in your long-term career aspirations? Aside from the long working hours which seem to be mostly a given now, most of the questions directed at you probably test for experience and skills: “Can you tell me how to value a company?”, “Can you do this?”, “What have you done before that convince us you can do this?” The idea that if someone has had success in his or her previous stints, there is a good probability that they will be able to replicate this in their future roles. But this is not always the case. “History helps us calibrate our expectations, study where people tend to go wrong, and offers a rough guide of what tends to work. But it is not, in any way, a map of the future. - Morgan Housel If companies could focus on aligning corporate goals with the ambitions of their potential employees, imagine how much impact that could potentially have on productivity and culture. Instead of searching for the best match of skills and experience in the relevant industry, one could consider placing more focus on hiring for personality. For example, someone who enjoys talking about everything under the sun could be a fish in water for a sales role. A perfectionist could be a good managerial hire for a public relations role whereby collaterals need to be impeccably produced. Or someone who has previously attempted a failed start up could also be the best choice for a corporate venture role as he would be prudent and sensitive to the nuances of launching a new product, having gone through it first-hand. Hard technical skills can be trained but interests and unique experiences remain more deeply ingrained in a person’s DNA. Furthermore, people generally don’t like to be told what to do because it makes them feel like they are not in control. Instead of free will, they feel like they have been given no choice even though they might have been happy to go along. [Jonah Berger] People produce their best work when it interests them. Companies use incentives such as money, hoping to channel and convert some of these personal interests into their commercial interests. No fault in that. But to do so requires some work in understanding what drives these people.

  • Quarantine free travel to Shenzhen

    Finally and for the first-time, I took the high speed rail from Hong Kong into Shenzhen. Despite the lunar new year festive period, the station didn't seem as crowded as I remembered it pre-COVID. I got my tickets online from, the official site of China Railway for all rail passes in China. I collected the hard copies from one of the counters the day before to avoid any long queues on the day itself. Once you pass through the gantry, numerous signboards will prompt you to fill up an online health and itinerary declaration form, which will generate a unique QR code for scanning at the border control points. While there are no swab or PCR tests at this point, you are required to obtain a negative PCR report within 48 hours before departure. And that's it - this post is as short as the journey on the high speed rail.

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