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1 Newspaper Articles http://www.asiaone.com/Business/SME%2BCentral/Talking%2Bpoint/Story/A1Story20100611-221572.html Business Times Singapore Published May 15, 2010 The power of vision The success of Berkshire Hathaway and Singapore can be traced to their visionary leaders who work with winning teams. By Tan Seng Hock and Kee Koon Boon WHAT do Berkshire Hathaway - the US$180 billion insurance, industrial and consumer conglomerate that billionaire Warren Buffett skilfully crafted - and Singapore have in common? Both are 'listed' in the same year - in 1965. Both are 'multibaggers' in the breathtaking sense. Berkshire compounded its net book value by 4,340-fold over the last 45 years to US$147 billion. Singapore grew from a small fishing village to around US$180 billion in GDP, and its GDP (PPP) per capita is ranked fourth in the world by the International Monetary Fund (IMF). With the 'float' provided by its foreign currency reserves, high savings rate, and fiscal prudence, Singapore's competitive economic dynamo is augmented by GIC and Temasek, to allocate its capital over the long-term. Both have visionary founders who bring important experiences and make critical choices early in the firm's or country's history that leave a lasting organisational imprint. Mr Buffett is the capital allocation genius and investor-extraordinaire at Berkshire; Minister Mentor Lee Kuan Yew is credited by Charlie Munger, the vice- chairman of Berkshire and billionaire partner of Mr Buffett, at the recent Wesco 2010 Annual Meeting, as the 'George Washington of Singapore'. Mr Munger added that Mr Lee is a 'very practical man' who 'tuned a country with no resources or agriculture into a prosperous country, starting from zero miles per hour'. In his usual pragmatic advice, Mr Munger said that his countrymen 'need to pay more attention to the Singapore model'. Also, both Berkshire and Singapore took off from a winning combination of teamwork. Mr Munger's contribution was to nudge Mr Buffett towards 'the direction of not just paying for bargains', as was taught to Mr Buffett by Ben Graham. Mr Buffett went on to add: 'It took a powerful force to move me on from Graham's limiting view. It was the power of Charlie's mind. Boy, if I had listened only to Ben, would I ever be a lot poorer; I became very interested in buying a wonderful business at a moderate price.' Singapore had the winning team of Lee Kuan Yew as the political visionary, Goh Keng Swee as the economic and financial architect, and Hon Sui Sen as the builder and administrator par excellence. The Ministry of Finance, Monetary Authority of LION CITY The Ministry of Finance, Monetary Authority of Singapore, Economic Development Board, Temasek and GIC that Singapore has today were the creations of the entrepreneurs of Singapore Inc The best way to preserve and grow capital in the long run is to identify honest, hardworking and far-sighted Lion entrepreneurs in whom to invest. Value investing is really about looking for this winning team combination.

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Newspaper Articles

http://www.asiaone.com/Business/SME%2BCentral/Talking%2Bpoint/Story/A1Story20100611-221572.html Business Times Singapore Published May 15, 2010 The power of vision

The success of Berkshire Hathaway and Singapore can be traced to their visionary leaders who work with winning teams. By Tan Seng Hock and Kee Koon Boon

WHAT do Berkshire Hathaway - the US$180 billion insurance, industrial and consumer conglomerate that billionaire Warren Buffett skilfully crafted - and Singapore have in common?

Both are 'listed' in the same year - in 1965.

Both are 'multibaggers' in the breathtaking sense. Berkshire compounded its net book value by 4,340-fold over the last 45 years to US$147 billion. Singapore grew from a small fishing village to around US$180 billion in GDP, and its GDP (PPP) per capita is ranked fourth in the world by the International Monetary Fund (IMF).

With the 'float' provided by its foreign currency reserves, high savings rate, and fiscal prudence, Singapore's competitive economic dynamo is augmented by GIC and Temasek, to allocate its capital over the long-term.

Both have visionary founders who bring important experiences and make critical choices early in the firm's or country's history that leave a lasting organisational imprint. Mr Buffett is the capital allocation genius and investor-extraordinaire at Berkshire; Minister Mentor Lee Kuan Yew is credited by Charlie Munger, the vice-chairman of Berkshire and billionaire partner of Mr Buffett, at the

recent Wesco 2010 Annual Meeting, as the 'George Washington of Singapore'.

Mr Munger added that Mr Lee is a 'very practical man' who 'tuned a country with no resources or agriculture into a prosperous country, starting from zero miles per hour'. In his usual pragmatic advice, Mr Munger said that his countrymen 'need to pay more attention to the Singapore model'.

Also, both Berkshire and Singapore took off from a winning combination of teamwork.

Mr Munger's contribution was to nudge Mr Buffett towards 'the direction of not just paying for bargains', as was taught to Mr Buffett by Ben Graham. Mr Buffett went on to add: 'It took a powerful force to move me on from Graham's limiting view. It was the power of Charlie's mind. Boy, if I had listened only to Ben, would I ever be a lot poorer; I became very interested in buying a wonderful business at a moderate price.'

Singapore had the winning team of Lee Kuan Yew as the political visionary, Goh Keng Swee as the economic and financial architect, and Hon Sui Sen as the builder and administrator par excellence. The Ministry of Finance, Monetary Authority of

LION CITY The Ministry of Finance, Monetary Authority of Singapore, Economic Development Board, Temasek and GIC that Singapore has today were the creations of the entrepreneurs of Singapore Inc

The best way to preserve and grow capital in the long run is to identify honest, hardworking and far-sighted Lion entrepreneurs in whom to invest. Value investing is really about looking for this winning team combination.

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Singapore (MAS), Economic Development Board (EDB), Temasek and GIC that Singapore has today were the creations of the entrepreneurs of Singapore Inc.

Like Lions, which are the only social cats that form 'prides', the winning team plan ahead to hunt together to go after bigger game; bigger game means more food for everyone. They surround themselves with 'like-minded' people - and there is a remarkable transformative effect. They affect deeply the people around them with their unwavering commitment, attracting a network of partners who respect them and want to work together with them.

The central tenet of value investing is really about finding and investing in the Lion entrepreneurs, the team of people with the character to make things happen and with a long-term vision to build their business models into a durable legacy.

Lions can be compared with Hyenas, who, although also possess entrepreneurial characteristics and survival skills to win in the stern strife of actual life, are short-term thinkers with a trading mentality.

Hyenas are the most formidable African predators, with jaws which are the most powerful in proportion to the body size of any mammal. These opportunistic killing machines are capable of running down and killing unaided a bull wildebeest three times its own weight, targeting the weak, injured, diseased, old and very young, and also stealing from the kills of other predators.

When chance and fortune present easy kills, Hyenas hunt in packs; following which, the pack then disbands and the Hyena is back to working on its own in the dark to scavenge for carcasses and quick gains.

Yet, the Hyena's immense respect for the Lion is unmistakable. The Lion is also the only natural predator of the Hyena. Of all predators, the Lion is truly the king. Their regal mane and authority, their bond with each other, their speed and prowess, and of course their knowledge - knowledge of all animals and their habitat - is incredible.

The best way to preserve and grow capital in the long run is to identify honest, hardworking and far-sighted Lion entrepreneurs in whom to invest. Value investing is really about looking for this winning team combination.

Risk, in this sense, is therefore clearly not sigma or standard deviation. In other words, measures of volatility of returns.

Risk is about the wrong judgment of the intrinsic value of the business, resulting in the possibility of absolute capital losses. Risk is about owning a business whose entrepreneur and manager are more interested in enriching themselves than building their company.

But risk is definitely reduced tremendously when investments in true Lions are made.

Lion entrepreneurs are alert to existing paradigms of how things ought to function and behave in the marketplace. It is this alertness that leads to their discovery through their strong conviction and belief that they can do it significantly better. And if the Lions sacrifice and persevere in doing this well enough, they will soon have a country or business which can survive the vicissitudes of commercial life, booms and busts, mania and panics.

Only then can the country or business begin to have a life on its own. That is what is called 'going concern', in accounting terms, so that the numbers make sense, and a 'PE' (price earnings ratio) can be applied to value the business meaningfully. But this is not enough. The next generation of Lions is needed to bring the country or business to the next level of success.

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Value investing has to be augmented by a qualitative assessment of how people, ideas, experiences, and structures come together to create a firm or country. Understanding the teams that come together and develop over time, and the Lion Infrastructure they build, is essential to understanding the sustainable performance of any country or business.

And we think finding and investing in Lions in Asia is all the more fascinating in this Lion City - Singapore.

Tan Seng Hock is the Group CEO and CIO of Aegis Group of Companies, a Singapore-based investment management organisation. Kee Koon Boon is a lecturer of accounting at Singapore Management University (SMU), and a director of Aegis Group of Companies. The writers were recently in Pasadena for the Wesco 2010 Annual Meeting http://www.asiaone.com/Business/SME%2BCentral/Talking%2Bpoint/Story/A1Story20100610-221337.html Business Times Singapore Published June 10, 2010 Lion Infrastructure and value investing

Both of them are an ongoing team process that demands sacrifice, hard work and soberness to scale new heights

By TAN SENG HOCK AND KEE KOON BOON

THE 'Singapore model'. This is what Charlie Munger, the vice-chairman of Berkshire and partner of Warren Buffett, wished for his countrymen to pay more attention to, in addition to the visionary and pragmatic leadership provided by Minister Mentor Lee Kuan Yew and the team of entrepreneurs of Singapore Inc.

So what is this 'Singapore model'?

And how did Apple Inc catapult from US$5 billion in market capitalisation in early 2003 to US$220 billion, and earn much more profits now than its entire market cap was during the dormant period of 2001 to 2003; whereas Palm, founded in 1992, which had helped pioneer the market for handheld organisers with its innovative PalmPilot devices and had a US$90 billion market cap at its peak, was bought out recently by Hewlett-Packard for a mere US$1.2 billion?

Also, how did Capital Group Companies, founded in 1931 by Jonathan Bell Lovelace and built by his son Jon Lovelace, defy the gravitational pull from managing a bigger asset size that perils performance to achieve superior long-run investment returns and become one of the largest and most successful investment management organisations in the world?

Singapore, Apple and Capital Group Companies are, what we coined, 'Lion Infrastructure'. A Lion Entrepreneur needs a Lion Infrastructure, and vice versa. This mental imagery of long-term and far-sighted entrepreneurs as Lion Entrepreneurs is an extension of our article on May 15, 2010 in the BT Weekend edition.

To illustrate this, we use the analogy of a skyscraper and a shophouse.

'Serving other decks', a melodious voice filled the lift from the intercom - heard only in a double-deck lift. This technology is important because the floor area required by lifts can be significant and they occupy less building

Solid foundation: Political stability; a clean government; a multilingual, multicultural, multiracial society; meritocracy - these values together form the Lion Infrastructure of Singapore with a scalable global outlook - a rugged nation that stays relevant to face challenges and harness global opportunities from all fronts

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core space and can take twice as many people in the same shaft than traditional single-deck lifts do. Architecturally, this technology allowed for the building of a 100-storey skyscraper in an efficient and sound manner.

Only Lion Entrepreneurs - with their teamwork - are willing and capable of building a 100-storey skyscraper, a Lion Infrastructure.

In contrast, the Hyena Entrepreneur is eager to construct a five-storey shophouse as it can be done in no time. The lone Hyena Entrepreneur can walk to the top of the shophouse by himself and without the need for a lift (what more a double-decked one!); investing and building the 'technology' slows him down.

After constructing a shophouse, to keep busy in enriching themselves, they sell the shophouse and build another one, and the cycle repeats.

The Hyena Entrepreneur is an opportunistic trader, not an all-season builder of lasting structure. The 100-storey skyscraper can carry more people and last longer than a five-storey shophouse; the skyscraper accorded multibagger returns to its group of stayers, whereas the flipped shophouse, although viably profitable (to the lone Hyena), has a far lower quantum of profit.

Apple was not exclusively about the discovery and commercialisation of the innovative new products from iPod (unveiled in October 2001), iPhone (June 2007) to the latest iPad (April 2010). Its success comes from wrapping the new products around the Lion Infrastructure to provide game-changing portable entertainment experience to the consumer by combining hardware, software and service, making downloading of digital music, video, games and apps via iTunes Store (since April 2003) easy and convenient.

Akin to Gillette's blades-and-razor model, Apple reversed it by 'giving' away the 'blades' (low-margin iTunes music and apps) to 'lock-in' purchase of the 'razor' (the high-margin iPod, iPhone and iPad) that is sold at the Apple Retail Stores (May 2001), creating a 'network effect'.

Still, a Lion Infrastructure takes time to build before that breathtaking 'multibagger' (outsized) burst of growth and success.

After Steve Jobs returned to the company he co-founded when Apple acquired NeXT in 1996, Apple was back to be the passionate design company that believed technology could change the world.

Mr Jobs spotted, upon his return, the designer Jonathan Ive who joined in 1992. Soon, as a team, the technology at NeXT found its way into Apple's products, most notably iMac. Mr Ive led the iMac design team, who would later design iPod, iPhone and iPad. Mr Jobs is the creative director, shaping everything from product design and user interfaces to the customer experience at Apple's stores. Mr Ive is the designer. COO Tim Cook, who joined in 1998, handles the day-to-day running of the business.

Successful countries and companies have operational and managerial team processes that allow them to deliver value in a way they can successfully repeat and increase in scale. Having a Lion Infrastructure means the business gets easier, not harder, as it gets bigger.

An undying, purposeful sacrifice is needed to build a Lion Infrastructure.

The founders at Capital Group Companies are willing to plough all their profits back into the business - for many years - knowing full well that it would take years to get their money back, to support strategic commitments that can prove rewarding over the long-run.

These investments include building up the 'multiple-counsellor' investment decision structure to handle assets as a team in order to overcome the fund size barrier to investment performance.

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Political stability; a clean government; a multilingual, multicultural, multiracial society; meritocracy - these values together form the Lion Infrastructure of Singapore with a scalable global outlook - a rugged nation relevant to face challenges and harness global opportunities from all fronts. It is like the solid foundation of a 100-storey skyscraper that is built upon pilings that are deep and over a wide area, and not just on a few stone columns.

The scale and constancy of the investments involved in building the Lion Infrastructure in Singapore and at Apple and Capital Group Companies discourage imitators - Hyenas.

In value investing, it is important to be able to recognise this Lion Infrastructure that Lion Entrepreneurs are building - that persistent, purposeful and painful sacrifice required to build the 'technology' and 'teamwork' that leads to 'multibagger' success.

To build a Lion Infrastructure is hard; to keep a Lion Infrastructure is much harder. The longer an organisation has been successful, the harder it is to sustain the creativity and competitive commitments required to continue improving.

The late Goh Keng Swee left behind words for Lion Entrepreneurs at various stages of their work in building the Lion Infrastructure: 'Regard the present condition . . . not as a pinnacle of achievement but as a base from which to scale new heights.'

Building a Lion Infrastructure is an ongoing team process that demands sacrifice, hard work and soberness to scale new heights - as does value investing.

Tan Seng Hock is the group CEO and CIO of Aegis Group of Companies, a Singapore-based investment management organisation since 2000. Kee Koon Boon is a lecturer of accounting at the Singapore Management University and a director of Aegis Group of Companies http://www.zaobao.com.sg/yl/yl100809_001.shtml

管理狮城的“狮子企业家”

(2010-08-09)

● 陈星福 纪钧文

你可知道由“股神”沃伦·巴菲特(Warren E. Buffett)呕心沥血打造、拥有 1800 亿美元的综合性企业

集团——伯克希尔·哈撒韦(Berkshire Hathaway)——和新加坡有什么共同之处吗?

其一,两者都在 1965 年“上市”。

其二,两者都具有令人叹为观止的业绩。伯克希尔的账面净值,在过去的 45 年里狂翻 4340 倍,到

现今的 1470 亿美元。新加坡从一个弹丸小岛腾飞至全球最具竞争力国家,其国内生产总值已达 1800 亿

美元。因为拥有着高储蓄率、庞大的外汇储备和审慎的财政政策所提供的“浮存金”(Float),新加坡才

能塑造世界上两个最大的主权财富基金:新加坡政府投资公司(GIC)和淡马锡控股。长期的资本配置

才得以有效的实现。

其三,两者都有高瞻远瞩的领导人。他们将毕生的心血投入到国家或公司的早期成长史中,并在关

键时期做出睿智的决策,而其效果有着深远持久的影响。巴菲特是伯克希尔的资本配置奇才。作为巴菲

特战略投资伙伴的查理·芒格(Charles T. Munger),在西科国际的 2010 年会中,高度赞扬李光耀资政是

“新加坡的华盛顿”。86 岁的投资大师芒格还说,86 岁的李资政是个“非常务实的人”,能将“一个自然资

源稀缺,农业工业欠发达的小岛,建设成一个繁荣昌盛的国家。”他希望美国人“能多加关注‘新加坡模

式’”。

其四,两者的腾飞都得利于天衣无缝的团队配合。

芒格的贡献是通过循循善诱的方式,将巴菲特原先的投资方式,转向现今享赋盛誉的价值投资理

念。巴菲特说:“本杰明曾经教我只买便宜的股票。查理让我改变了这种想法。他指出了我思维上的盲

点,扩大了我的视野。从此,我另辟蹊径,对购买优秀但合理价位的企业产生强烈的兴趣。” 于是,巴

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菲特便在 2008 年购买比亚迪 9.9%的股份,成就了中国和美国具有重大意义的价值投资,使伯克希尔在

其投资的 2 亿 3200 万美元,翻了 8 倍以上。

狮群团队是新加坡成功的要素

新加坡的金牌团队,是由李资政为政治宏观体系的领导人、吴庆瑞博士为经济和金融构架的总建筑

师、韩瑞生为行政总监所配合成。新加坡现今的财政部、金融管理局、经济发展局、淡马锡控股和新加

坡政府投资公司,都是这组“新加坡 Inc”的企业家所创作。他们纤细、务实、正气的个人命运紧连起来,

奏成了新加坡这部巍巍交响乐。卓越的团队犹如狮群,谋划在先而群起攻之,以捕获更大的猎物。大的

战利品意味着更多的食物得以分配予大众。他们与志同道合者歃血为盟,并以其王者风范,感染和吸引

着一班敬仰他们和乐于共谋大业的能人志士。

价值投资的核心,在于鉴别并投资于“狮子企业家”(Lion Entrepreneur),那种有着刚健质朴、求实

创新精神,能把国家或企业建造成一个可持续增长伟业的领导人。而 “豺狼企业家 ”(Hyena

Entrepreneur)虽然也具有一般创业者的特质,能在残酷的环境下生存,但与“狮子企业家”相比,他们仅

是目光短浅的投机者。豺狼是非洲草原上最残暴的食肉动物。它能轻易的杀伤一头三倍于其体形的公

牛。豺狼也是名副其实的食腐动物,任何东西都吃干榨净。当机会来临时,它们也会成群捕杀猎物。但

完成厮杀后,这伙投机性的豺狼便自动解散,重新做回在黑暗里搜寻猎物残骸和近利的独行者。狮子则

是草原之王,也是豺狼唯一的捕食性天敌。当狮子行走在草原上,他非凡的气宇和那飘动的鬣毛便能勾

勒出其王者风范。狮群彼此间情感深厚,而豺狼之间只有利益关系。狮子对所有动物和它们起居习性的

知识是博大精深的。

从长期来看,资本保值和增值的最佳方式,是将其投资于“狮子企业家”,而鉴别和筛选诚实苦干、勇于

创新、远见卓识的企业管理团队,就是价值投资的真谛。从这个角度来看,风险不再是由西格玛

(sigma)或标准偏差(standard deviation)来衡量的波动性回报。真正的风险,是对公司或商业模式的

内在价值的错误判断而导致的绝对资本损失。风险也存在于将资本投资在那些仅注重短期经济回报,而

非企业长期发展的经营者。但投资于狮子企业家将能有效地降低风险。狮子企业家对于市场微妙的变动

和未来走向有极大的敏感度。正是这种敏感度,赋予了他们强大的信心,让他们坚信他们可以做得更

好。只要狮子企业家坚定不移地将他们的信念贯彻到长期性的国家或公司建设,他们便能自如的驾驭市

场的兴衰枯荣。惟有如此,国家或企业才能有自己的生命力,也就是会计术语里的“持续营业能力”。财

务报表上的数字也才真正具有意义,而投资者则能更有效的通过本益比或其他的估价方式,来对公司进

行价值评估。但这还不够,下一代的管理团队需要百尺竿头更进一步,将狮子领导人的精神延续下去,

并实现国家或企业可持续发展。

价值投资必须通过对管理者素质、经营理念、市场经验和商业模式进行综合性的定性分析。理解经

营团队如何形成和发展,还有他们所建造的“狮子型基础建设”(Lion Infrastructure),是认识国家或企

业的精髓。而我们深信在狮城(新加坡)发掘和投资亚洲的狮子企业家,有着无穷的魅力。

陈星福是某基金管理公司的执行和投资总裁;纪钧文是新加坡管理大学会计学院的会计讲师和保盾基金

公司的董事。 http://www.businesstimes.com.sg/sub/storyprintfriendly/0,4582,414782-1290715140,00.html? Reforming corporate governance Business Times Singapore Published November 25, 2010 Investors need to understand interaction between underlying business model dynamics and those running the enterprises By KEE Koon Boon Snatch. The action undertaken by Harpies, the spirits of sudden, sharp gusts of wind in Greek mythology who would snatch away (harpazô) things from the earth. They had plagued the old blind King Phineus such that whenever a plate of food was placed before him, the winged Harpies would swoop down and snatch it away, befouling any scraps left behind.

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CORPORATE governance, as elucidated by leading finance researchers Andrei Schleifer and Robert Vishny, 'deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do they make sure that managers do not steal the capital they supply or invest in bad projects?' A formerly popular group with retail and institutional investors of around 150 Singapore-listed Chinese companies, the worth of the S-chips has dwindled significantly from around S$40 billion in market value by more than half due to the continuous gust of cold wind in mis-governance and accounting scandals blowing across these firms. Attention and discussion on corporate governance reforms in minimising managerial agency costs and to align managerial interests with the shareholders had centred, perhaps narrowly, on the 'agents' or the 'chess pieces', some of which include the independence and quality of the independent directors in their monitoring efforts. We need to step back and look instead at the 'chess board', the rules of the game in Asia that influences ownership behaviour and the accounting mechanism, in order to avoid the plight of Phineus with managers or controlling owners leaving defiled returns for the minority shareholders and an awful mess for the authorities to clean up. Wedge. The word to understand the Game. That sharp divergence between cash-flow or equity rights and control rights in the typical Asian firms. Controlling owners are tempted to tunnel assets out of firms where they have low cash-flow rights but high controlling rights to firms where they have both high cash-flow and controlling rights, oftentimes their closely held private firms in which they are the dominant shareholders. Let's take the case of Satyam to understand the Wedge. Ramalinga Raju tunnelled out US$1 billion in cash and assets from his listed vehicle Satyam, where he and his family held around 8 per cent equity rights, to his 100 per cent owned private property firm Maytas, to participate in Hyderabad's property market. With Maytas, they can get 100 per cent of the cash flow as compared to 8 per cent in Satyam. When the credit crunch started to melt away the prospects faced by his private firms, especially as Hyderabad's property market cooled with prices and rents falling more than 30 per cent, he could not bring the dwindling money back to Satyam from his 300-odd private business vehicles for accounts-keeping and maintenance of a competitive dividend yield. Raju decided to raise cash from investors to make up for the bogus US$1 billion in cash and assets by injecting some of his private assets into the listed Satyam. The price tag of the acquisition to 'de-risk' the business? US$1.6 billion. Minority shareholders rejected his plan, decrying a 'woeful misuse of cash'. Past enamoured investors abandoned Satyam one by one, and share prices fell, which triggered the margin call in Raju's personal pledged shares. Bankers force-sold his shares, resulting in the price to plunge further. Like Raju, many of the S-chip controlling owners have multiple private business interests, property development in particular, outside of their listed vehicles. How did the distorted incentives in the Wedge work its way to be manifested in the accounts? First, the controlling shareholders will engage in 'propping' activities to artificially inflate the sales and assets of the listed firms through related-party transactions (RPTs) to entice the funds of investors who did their 'fundamental analysis' of the firms. Artificial accrued sales are booked under 'other receivables', while the bogus cash-based sales stay hidden in the 'cash & cash equivalents'.

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After 'propping', 'tunnelling' or expropriation of these assets out of the listed firm follows, engineered through related-lending and transfer activities which are rarely paid back by the controlling shareholders. These cash transfers are done artfully, often in short-term transactions in order to be qualified as 'cash equivalents'. That explains why most of the artificial cash balances in these firms typically earn low average interest rates, at below one per cent, when the typical bank rate in China varies between 5 and 10 per cent. In other words, there is left-side in via propping, and right-side out via tunnelling. Take the case of the high-profile and 'highly profitable' S-chip Sino-Environment. Footnote 12 of their 2008 Annual Report revealed that the average interest rate earned from their 728 million yuan (S$143 million) cash in the balance sheet is merely 0.56 per cent. In Footnote 13, the amount due and dividend receivable from its subsidiaries in the company accounts is 282 million yuan. In their group accounts, the amount of non-trade receivables is 240 million yuan out of the 276.5 million yuan in total receivables. From Footnote 12, Sino-Environment possibly made dubious related-party acquisitions, financed by the IPO and secondary equity offerings, to cancel the artificial receivables that were created in collusion with the related parties, and booking the set-off as goodwill and intangible assets which stood at 228 million yuan. In a Raju-deja vu fashion, property was involved. According to news articles reporting about the firm's situation, its chairman Sun Jiangrong reportedly tried to siphon away a 100 per cent stake in Chongqing Daqing Property, which owned properties in China worth 10 billion yuan, to his Hong Kong private firm called Top One Property Group, and later to a Chinese firm owned by his brother. Thus, rather than hearing again that inevitable lament why boards - often skin-deep installations - work so poorly so often, regulators should thrust the corporate governance stake right into the heart of perverse behavioural incentives where it matters most: by having mandatory disclosure of the ultimate unseen ownership and private business interests of the controlling owners at these Asian firms to hopefully curb the growing opaqueness in the Wedge between ownership rights and cash-flow rights disguised under the increased usage of nominee shareholdings and non-disclosure. While controlling owners may view the tunnelling of that $1 out of the firm to be enhancing or protecting their own interests - albeit at the detriment of the minority shareholders - particularly in bad times when they fear losing the value of what they have built, they need to appreciate that they are putting to risk the going concern of their companies to enjoy that elusive valuation premium of a multibagger that usually comes from putting that $1 - and more - back into a single, focused business vehicle, and riding through the ups and especially downs of the business cycles with their reputations intact. Investors should take heed of the rules of the game, and pay due respect in seeking to understand the interaction between the underlying business model dynamics and the people running the enterprises. It would be premature to speak of 'fundamental' analysis using possibly rigged or incomplete accounting numbers due to propping and tunnelling to fashion elaborate, but garbage-in-garbage-out, valuation models, or 'technical' analysis of possibly manipulated prices and volume. When value investing is applied properly and rigorously in Asia to identify the right entrepreneurs and managers who are serious in building their business model into a legacy, and to protect, to guard, to preserve the assets of the investors, the rewards can only be bountiful, especially in a tempest-tossed environment. The writer is a lecturer of accounting at Singapore Management University, and a director of Aegis Group of Companies, a Singapore-based investment management organization

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http://www.businesstimes.com.sg/sub/views/story/0,4574,419680,00.html Business Times Singapore Published December 30, 2010 Lion Infrastructure is the way to go

To reach a US$2 trillion GDP in 2065, Singapore must create and build commercial assets with a special quality

By TAN SENG HOCK AND KEE KOON BOON

HUNDREDFOLD. That's the breathtaking growth of Singapore's gross domestic product (GDP), from US$1 billion after its independence in 1965 to US$100 billion in 2004 when Prime Minister Lee Hsien Loong took over the reins from his predecessor, Senior Minister Goh Chok Tong.

Another tenfold increase in value creation in the years to 2065 (that is, 100 years since its independence) - from an estimated US$200 billion GDP in 2010 to around US$2 trillion then - and Singapore may well surpass the present level of US$2.2 trillion GDP of the UK, its former colonial master. This will likely take place, particularly as Asia successfully seizes the growth opportunity to be the global leader, in economic and cultural terms, in this century.

Consider the case of Procter & Gamble (P&G). Founded by English storekeeper William Procter and candle maker James Gamble, P&G surged more than hundredfold in 'Stage 1' since its incorporation as a company in 1890 to S$20 billion in 1987. The company found itself in an advanced phase of market maturity with its products and battling on all fronts with intensifying competition from competent rivals. Yet, P&G grew by another tenfold in 'Stage 2' to current S$230 billion.

Consider the case of Nestle. The famous company grew more than hundredfold since Frankfurt-born pharmacy assistant Heinrich Nestle left his hometown to set up the Nestle shop in Switzerland in 1866, to S$20 billion in 1980s, and again by another tenfold, to current S$250 billion.

Most competent 'Stage 1' companies do not cross the chasm to 'Stage 2' because they lack the Lion Infrastructure - the teamwork, the knowhow, the necessary institutional structures and the culture - in order to not only survive but also thrive upon changes in the marketplace to become multibagger Lions.

Sustained performance

These Lions are akin to the Berkshire Hathaway, Singapore, Apple and The Capital Group Companies that generate a sustained and outsized investment management performance, as discussed in our earlier BT articles on May 15 and June 10. Value investors take delight in understanding what urges and qualifies an entrepreneur to perform acts that lead to the building of a Lion Infrastructure in a business.

In 'Stage 2', the Lion Infrastructure and culture are the sails that determine the course, not the wind. P&G cultivated US$23 billion brands, while Nestle groomed 27 such brands with over US$1 billion in sales. These multibagger billion-dollar brands are profound sources of vitality to sustain the competitive edge and value relevance at P&G and Nestle.

A company creates value at different stages of its corporate life cycle, arising from the relentless and eternal pursuit of excellence to perfect its offerings to the marketplace.

Mission not impossible: Singapore has been a powerful magnet for global capital flows and MNCs. If it can cultivate 10 $100 billion companies and 50 $20-billion companies of Lion calibre in the next 50 years, a $2 trillion GDP economy may well be achievable

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In the context of Asia, a competent entrepreneur in 'Stage 1' may be able to build his or her business from a size of under S$100 million to S$1 billion. This is achieved with the right emotional incentives aligned to encourage decisive stewardship in the process to create lasting cost or demand advantage over competitors.

However, to be able to build up the enterprise further to S$10 billion and beyond in 'Stage 2', sacrifice and stable capital in long-term investments since 'Stage 1' - to build a cohesive team and a Lion Infrastructure, which include governance, operational and financial management system - are required.

Most 'Stage 1' companies are content - and may even display smugness - to conserve the sizeable gains that they have achieved and fail to invest to build an ongoing and lasting business.

Investing in the team and a Lion Infrastructure slows down the lone, powerful Hyena entrepreneur; he or she prefers to continue to capitalise on short-term opportunistic quick gains. The difficulty is often closest at the finishing line; these companies remain in the lower gears, even risking blowing up, when they are, in fact, at the tipping point to enter 'Stage 2'.

Take the case of the quintessential supply chain manager and asset-light business model, Li & Fung, also one of the best-performing stocks in Hong Kong, that catapulted nearly hundredfold from S$290 million to S$28 billion since its listing in 1992. Li & Fung produces S$20 billion in garments and other goods for the world's top brands and retailers - without owning a single factory.

Penang, Malaysia-born CFO Frank Leong played an important role in helping the visionary Fung brothers, running the OSG (Operation Support Group) from 1995 until his retirement in 2004. OSG keeps a database of more than 8,000 factories, suppliers and clients around the world and uses it to orchestrate the various members in its network so that they can compete like a pride of Lions to generate a greater quantum of profits for all partners and developers around its core offerings.

OSG oiled the machinery that enabled the entrepreneurial leaders in Li & Fung's multiple business units to focus on its core competencies to meet the needs of customers and fighting battles with competitors, growing multibaggers in the process.

The Lion Infrastructure at Nestle propelled the Swiss enterprise to become the world's biggest food company, helping the Swiss economy, which has 7.8 million people, grow at twice the rate of the European Union. On a per capita basis, Switzerland hosts about eight times more of the world's 500 largest publicly traded companies than Germany, the region's biggest economy.

Seventeen of the world's 500 biggest companies are Swiss, amounting to about one for every 500,000 residents, compared with one for every four million people in Germany. These multibagger Lions in Switzerland are a major asset to the country; they helped the economy to prosper by boosting exports, creating jobs and spurring consumption.

Powerful magnet

For Singapore to reach a US$2 trillion GDP in 100 years since independence, it must create and build commercial assets with a 'special' quality. Like the 'special' Nestles, these commercial assets cannot be taken away or destroyed by foreigners and become even more valuable with the participation of multinational talents.

They possess values which are not determined by the arbitrary fluctuations in the foreign currency of any one country, such as the US dollar. The company assets are also not like land values influenced by foreign demand or reap transient windfall gains when sold to foreigners at high prices. These are intangible assets representing real wealth to sustain a nation, not just tangible monetary assets which can be brittle.

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Singapore has been a powerful magnet in attracting global capital flows and multinational corporations (MNCs) to capital-deepen its economy, demonstrating exemplary efficiency in organising the resources and tangible infrastructure to execute the strategy, resulting in the hundredfold value creation in 'Stage 1'.

In 'Stage 2', we need hundreds of Nestles more than we need hundreds of billions of US dollars or gold; we need the golden goose and not just rely on eggs from other people's golden goose.

If Singapore can cultivate 10 S$100 billion companies and 50 S$20-billion companies of such Lion calibre in the next half a century, a S$2 trillion GDP economy may well be achievable.

The writer is the Group CEO and CIO of Aegis Group of Companies, a Singapore-based investment management organisation since 2000. Kee Koon Boon is a lecturer of accounting at the Singapore Management University

and a director of Aegis Group of Companies.