Investors Beware of Brazilian FIDCs (ABS) Backed by Consumer Credit

Sep 29, 2011 by

Investors in Brazilian ABS backed by consumer loans should be wary of increasing levels of non-performing loans (NPLs) in Fundos de Investimento em Direitos Creditórios (FIDCs). LatAm Structured Finance has warned about this before (www.latamsfc.com). Evidence the situation is worsening includes the following recent developments in Brazil.

  • Central Bank of Brazil surprises markets and lowers SELIC 50 basis points.
  • Banks increase reserves and provisions for bad debt to record levels.
  • FGC Helps to Sanitize the Financial System

What are the implications for investors?  New-issue investors need to evaluate carefully the issuing entity’s portfolio for the quality of debt underwriting and the entity’s ability to service the loans.  Investors that currently hold FIDCs need to monitor the credit portfolio’s performance carefully.

We see weakness in consumer loans issued by banks and finance companies and we have no doubt that this is the single thread that unites some of the otherwise contradictory economic news in the Brazilian press. 
Both the Central Bank of Brazil (BCB) and the Fundo Garantidor de Crédito (Credit Guarantee Fund, FGC) have been working behind the scenes to contain the growing problems from NPLs and to prevent a full blown credit crisis in Brazil.

FIDCs do not have this government protection.  FIDC credit quality has deteriorated since the beginning of the year according to data we pulled from Orbis, a structured finance database and news service from Uqbar.  Of the 250 FIDCs in the Orbis system with data for the last seven months, 77% have seen increases in provisions for bad debt (PDD – Provisões Devedores Duvidosos).   PDD increased more than 100% since the beginning of the year in 29 FIDCs.  Fifteen of those deals were either multiple market or multiple segment deals.  Due to lack of transparency in the Brazilian ABS market, it is better to look directly at the credit markets themselves to understand these trends.

Putting Together Pieces to Understand Brazil’s Credit Markets

The August 30 meeting of the COPOM, the monetary committee for Brazil’s central bank (BCB), dramatically altered the general perception of the economic picture in Brazil when they cut SELIC by 50 basis points.  Most analysts were caught by surprise; however, our calculations show that the market had been forecasting approximately an 80% chance of a 25 basis point interest rate cut on August 29.   The COPOM has since been criticized from many corners for lowering the rate even though Brazilian inflation has not yet retreated.

The market now expects the COPOM to cut SELIC to about 10.25% by June 2012, while analysts polled by the BCB survey are divided between 10.50% and 10.75% as the low, as you can see in the first graph below.  Both the market and economists now view the BCB as very accommodative.  The BCB conveniently cites the growing problems in Europe as the motive for cutting rates.  We don’t believe that’s their main motivation.  In our view, the BCB and the Brazilian Government are more worried about the growing problems with consumer credit at home and about protecting the banking system.   This explains why the BCB cut rates at the risk of losing control of inflation and some credibility with the international financial community.


We have been warning that the Brazilian financial system is showing signs of strain due to the extraordinarily high growth in consumer credit balances and the high level of consumer NPLs since May 2011.  Government’s efforts to rein in the growth this market have failed.  We also pointed to the evidence that payments on consumer loans are not sufficiently large enough to amortize the principal. As a result loan balances continue to grow in spite of declining issuance (See our Second Quarter Review).

The Brazilian press continues to point to the overall low levels of non-performing loans and occasional reductions in the levels of non-performing loans.  We put these reports in the basket labeled “misleading statistics.” As with FIDCs, the overall numbers in the financial system are obscuring some important developments in the sub-sectors.  Most importantly, there is a growing number of NPLs on the consumer portfolios of both banks and non-bank finance companies.

Smaller Brazilian banks have encountered difficulties in managing their balance sheets since the 2008 global credit crisis.  These banks find it difficult to sell parts of their credit portfolios to the larger banks because the large banks have tightened up their credit underwriting standards, especially after the Banco PanAmericano scandal.  The graph below indicates two dangerous trends.  First, NPLs continue to run much higher than 2008/2009.  Second, the lagged but sudden increase in NPLs in bank portfolios indicates that the problems in consumer credit portfolios for non-bank finance operations seem to be affecting or “contaminating” the bank consumer credit portfolios.

Brazilian Consumer NPL

Estado de São Paulo announced in a September 15 edition that the Fundo Garantidor de Créditos (FGC) had realized “sanitation operations” of around R$7.5 billion this year to clean up problems with some medium and small sized banks.    The most recent operation transferred Banco Matone to Grupo JBS, thanks to support of R$850 million from the FGC.  The other big “sanitizing operation” for 2011 was a R$1.5 billion package help BMG absorb Banco Shahin.  That leaves roughly R$5 billion more in other operations that have been used to shore up other banks.  FGC currently has resources of a little more than R$26.8 billion.  This means that the fund has spent about 25% to 33% of its resources to prop up the financial system this year.

It is clear that the BCB and the Brazilian government are trying to avoid a panic.  An editorial in Estado de São Paulo points out that the FGV’s operations have two advantages promoted by Brazil’s Central Bank:  they don’t involve public money and they are discreet.  The operation’s discretion prevents depositors from panicking about the financial health of other banks.    The editorial points out that this helps reduce systemic risk in the Brazilian financial system.

At the end of August we produced a report that analyzed the recent actions taken by Brazilian banks to shore up reserves and increase provisions for non-performing loans.  (See “At What Height Does A Bank Seawall Protect From a Credit Tsunami?”)  The biggest Brazilian private and government banks have been increasing loan loss provisions and reserves to almost unheard of levels.  Caixa Econômica Federal is provisioning 300% of NPLs.   Given that banks recover on average 30% to 40% of bad debt, with the range spanning from 5% to 60% of the value of loan, a provision of 300% of NPLs seems like overkill unless the bank knows something that the public doesn’t.  Brazilian banks execute “renegotiation operations” that banks in other countries would normally consider bridge loans for defaults.  The BCB would know if banks are entering into these types of agreements frequently.

Summarizing the condition of the FIDC Market

This brings us to the FIDC market in Brazil.  The statistics are deceptively reassuring.  As the graph below demonstrates, the overall PDD level has been fairly stable.  It appears that the problems in the consumer credit market have not yet affected FIDCs in general.  As with the banking system, we believe the overall statistics are hiding the problems.  Statisticians often quote the paradox of a person drowning in a river that is on average 5 inches deep.   We believe that the distributions are skewed and that the averages are hiding problems.

PDD First Half 2011

We used data from Orbis to calculate the percent change PDD from January to July 2011 and plotted the data in the histogram in the fourth graph below.  We took out all of the deals with extraordinary changes over 500% to error on the side of caution in our calculations.  PDD increased by more than 25% in more than 47.6% of the FIDCs over this period, even with our conservative approach.

Histogram of Percent Change in PDD

Part of this artificial stability stems from the issuer’s ability (and common practice) to buy back loans that are more than 90 days past due.  However, the CVM has passed new rules (Instruction 489) that will severely limit the balance sheet options for issuers who repurchase substantial amounts bad loans from FIDC credit portfolios.  In addition, the banks will not have the balance sheets to continue this practice if the credit markets continue to deteriorate.   We believe this picture will worsen as the economy slows down more.

As stated in the opening, new issue investors need to evaluate carefully the issuing entity’s portfolio for the quality of debt underwriting and the entity’s ability to service the loans.  Investors that currently hold FIDCs need to monitor the credit portfolio’s performance carefully for the near future.

As bank portfolios deteriorate in quality and larger banks rein in issues, smaller banks will have more incentive to sell loans into FIDCs. Investors in FIDCs backed by short term credit, such as factoring receivables, need to be especially vigilant.  These revolving FIDCs experience large turnover and the credit quality can drop dramatically in one month. Any sudden jumps in PDD or sharp increases in late payments (Créditos Vencidos e Não Pagos – CVNP) should be investigated quickly.   This information can be found on the Informe Mensal on the CVM website.

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Is the Market for Brazilian Real Estate Investment Funds Cooling Off?

Sep 12, 2011 by

The growth in the market for mortgage-backed securities over the past few years has been phenomenal by any measure. Structuring firms generally issue two types of securitization vehicles: Brazilian Real Estate Investment Funds (Fundos de Investimento Imobiliário or FIIs, which are similar to Real Estate Investment Trusts in the United States), and Certificates of Real Estate Receivables (Certificados de Recebíveis Imobiliários – CRIs, which are very similar to mortgage pass-through securities issued in the United States).

According to the CVM website, 23 FIIs with a total value of R$561 million where registered in 2008. In 2010, 39 FIIs were registered with a total value of R$9.7 billion. As of August 2011, 26 FIIs have been registered with a value of R$4.8 billion versus 16 FIIs in the same period of 2010 with a value of R$2 billion. In 2008 there were R$4.7 billion CRIs issued, R$3.8 billion in 2009, and R$8.53 billion in 2010, almost twice as high as the previous record in 2008. (CVM data)

The Comissão de Valores Mobiliários (CVM – the Brazilian equivalent of the SEC) had restricted FII to investments in pure real estate. The rules were relaxed in 2009 to allow FIIs to buy other types of real estate securities, such as CRIs, as well as the pure real estate. The new regulations also allowed CRI-backed FIIs to pass-through the tax advantages embedded in CRIs. This was one of the main factors in the growth in the market for FIIs.

However, there are recent signs that the market is cooling off. The performance of the FII market has fallen in the last four months according to Uqbar (a Brazilian firm that tracks the FII market and provides data through its Orbis service). In 2010 the 22 most actively traded FIIs returned a capitalization weighted average of 21.2% (Data from Uqbar, LatAm Structured Finance calculation). Just the price appreciation of FIIs was 13.2% in 2010. In April 2011 the average 12 month price return was 16.5%, in May and June 14.6%, and dropped to 12.2% in July.

Like the market for FIIs, real estate in Brazil is experiencing some hiccups after increasing steadily over the last few years. On August 31, 2011, Estado de São Paulo reported that the unit sales in the city of São Paulo fell 31% in the first half of 2011 and fell 28% in the São Paulo metropolitan area. While the level of activity is cooling off some, the São Paulo real estate market is still seeing lots of activity with 80% of the listed property being sold in 6 months or less. However, the market makers warn that this level of activity can only be maintained with continued economic growth and the availability of credit.

http://www.estadao.com.br/noticias/impresso,sinais-de-acomodacao-no-segmento-imobiliario,766321,0.htm

In a side article in the same edition, Ana Maria Castelo, an economist with Fundação Getúlio Vargas (FGV), writes that Porto Alegre and Belo Horizonte also experienced weaker real estate sales. She notes that this slow down started before the growing global credit problems and arises from domestic factors. Demand in 2010 was overheated and credit expanded very rapidly. This increased building activity also drove up prices and construction costs increased 7.71% in the last twelve months. Castelo argues that this is still not a bubble because the growth is sustainable and that Brazilian real estate will continue to perform well despite these recent setbacks. “Prices may not increase as dramatically, but they will not fall. Buyers will become more cautious as the prices continue to increase and financing will be limited by the level of income.”

http://www.estadao.com.br/noticias/impresso,nao-temos-bolha-o-mercado-vai-continuar-aquecido,766325,0.htm

The market for FIIs and CRIs in Brazil should be followed closely if the investor is planning on entering at these levels. The Brazilian economy is still growing but the growth is slowing dramatically. While delinquencies on real estate for business and residential purposes are at multi-years lows, Brazil is experiencing a bubble in the consumer credit markets and non-performing loans in this sector are rising rapidly. Banks are cutting back on credit and tightening their underwriting criteria. It is time to use some caution and look at the possibility of muted price gains for the foreseeable future in the Brazilian real estate market and the market for securities backed by real estate and real estate debt.

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New SWF Investor in Africa

Aug 10, 2011 by

Temasek Holdings, Singapore’s Sovereign Wealth Fund is at it again. It recently formed a Joint Venture with Oppenheimer Family Fund (a South African family office) to start Tana Africa Capital, a USD$300m fund which will invest in the Consumer Goods and Agriculture sector in South Africa. Interestingly, it is only looking to invest in 5 to 6 opportunities over the next few years, and already has a strong deal pipeline.

Nagi Hamiyeh, managing director of investment at Temasek, said: “With a growing population of more than a billion, the African domestic economies are growing with the emergence of a middle class with an increasing disposable income. James Teeger, group managing director at E Oppenheimer & Son appears to be the representative of the Oppenheimer Family in this venture.

 

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Locating Investors in the Middle East

Aug 8, 2011 by

Finding investors is not as easy as it sounds, and requires time, resources and a
creative marketing strategy. I am often asked by both emerging and established managers the simple questions: “Where do I find investors, and how do I encourage them to invest in my fund?”

In the GCC region, investors who allocate to fund managers tend to prefer allocating to funds with larger assets under management, longer track records and higher levels of liquidity. Unfortunately, these requirements are common among investors in markets where the fund industry is relatively young, such as the GCC. Funds that do not meet these criteria from the offset must work harder to identify the correct investors, build an internal investor database and implement a professional marketing strategy in order to win allocations.

Identifying which group of investors you wish to target is the first step on a long process of relationship building. In the investor pyramid below, sovereign wealth funds top the chain and are usually seen as the largest allocators to funds globally, followed by pension and endowment funds. Beneath them, high net worth individuals tend to engage private banks, independent wealth advisors or family offices to manage their investment portfolio, who in turn may then allocate to funds of funds that are more industry/sector focused when looking to diversify their clients’ portfolios.

Allocations are not necessarily made in this order. However, having this picture in mind helps managers focus on their target market, since it is impossible to have a one-size-fits-all fund product. It also helps managers in developing their branding, sales and marketing strategy.

When building a marketing strategy, fund managers should identify where their target investors are domiciled and start gathering contact data on them from the websites of their respective regulators. For example, when looking for information on private banks in the DIFC, fund managers should go through the DIFC register as well as the DFSA register.

Another tool to help build an initial investor database is to purchase one from a reputable source. Although investor databases on sale on the internet are often out of date and occasionally contain inaccurate information, it is a good first step in building an internal marketing database for your firm.  Many of these investor databases contain contact details and descriptions of potential investors, which is useful when you wish to filter your target investor market. It is important to keep your internal database clean and updated, either by your internal marketing team or with the help of an external professional consultant.

Picking the correct customer relationship management (CRM) software is also important. Remember, finding an investor is less than half the work done. The ultimate goal is to convince them that your fund is a suitable investment candidate by building a relationship, and by being transparent with your product.

Make sure that a professional marketing strategy is put in place to send your funds’ details and performance data to the potential investor on a regular basis. Have your investor relation team visit the offices of the potential investor at least once a month, and make sure that every note relating to these investor visits are put on the central CRM system, so everyone in the team who might deal with the potential investor is kept updated on historical communications. The trick is to be consistent in your communication and in your follow-ups.

Finding investors and getting them to invest in your fund is no easy task, and there is no silver bullet. It involves time, resources and a little creativity in building your marketing strategy. The funds industry in the GCC is growing, and it is the fund manager who gets off on the right foot earliest wins the investments.

Contact me if you are looking to build investor relationships in the Middle East.

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Risk Management Software Startup Selling Majority Stake

Aug 7, 2011 by

I recently was contacted by the founder of a risk management software company based in the United States, who was looking for an investor for his company pre-money.

Quoting from his email,

Our software is intended for the financial adviser as cutting-edge analytic support for better wealth planning decisions – pairing the adviser’s capabilities and client relationships with a toolset that helps to assess the client’s current risk and return profile, examine new investment and cash planning decisions not just in the content of risk and reward but in light of probability of goal success, and finally to optimize investment plans and cash plans using our patent-pending methodology. Our software is able to measure risk and optimize the full suite of investment products and insurance products, including complex variable annuities. This is why the current commercial interest in our solution is the following:

- insurers see our tool as useful in helping to sell their products (particularly variable annuities) to skeptical clients. Without a toolset like ours (which does not exist in the market) they cannot easily show how, for example, a complex variable annuity can help a client raise their probability of successfully meeting their overall goals. All clients (and many advisers) see is a highly structured insurance contract with an even more complex fee schedule; we can help quantify the benefits during various scenarios and stress environments.

- we are in partnership discussions with a US-based wealth advisory service to distribute a SAAS-driven wealth planning service to independent financial advisers, using our web services interface which integrates our analytics with any in-house or commercial full service wealth planning software application

- we are in discussions with a world-class wealth manager, who would use the software in their private planning desks to help with more complex, structured analysis for high net worth clients

Moving all of these forward is the key reason we, as a pre-revenue start-up, are seeking a strategic acquisition / stake at this point in time – particularly if the acquirer has interest in entering these commercial segments to leverage and expand their existing business lines.

I have looked at the presentation relating to this company and their software/services, and it certainly looks promising. If you’re reading this and have some interest in acquiring a majority stake in this company, drop me an email (felix@felixsim.com). This definitely looks like a company to watch.

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Dubai – The gateway to Middle Eastern investors

Jul 28, 2011 by

 The UAE  may not be seen as such an attractive place for the investment community at the moment, but it certainly still presents a lot of hidden investment opportunities (and investor pools). Real estate prices is at its lowest points in history, banks are beginning to provide credit, private equity funds are allocating investments to businesses with growth potential, and private investors are starting to flock into the UAE (primarily Dubai) from neighbouring countries including the sub-continent.

Like all emerging markets, the only way to be able to tap into these opportunities is to physically spend time in the country. Not surprisingly, the Dubai International Financial Centre (DIFC) is enjoying the inward flow of financial institutions and investors into the Middle East. The DIFC arguably provides the best (and probably the only) legal and regulatory infrastructure to run a financial institution or family office in the Middle East. It is the only financial free zone in the Middle East with its own legal system and courts, and a regulator – the Dubai Financial Services Authority (DSFA) – which has become more mature and experienced in the last 6 years.

All financial services firms such as Hedge Fund managers, financial advisors and investment banks who wish to conduct business in the Dubai International Financial Centre MUST be authorised by the Dubai Financial Services Authority (DFSA). Before the DFSA can authorise a firm as an Authorised Firm, they need to be satisfied that the firm meets their Fit and Proper test, and is likely to do so on an ongoing basis. Generally, Fit and Proper means the ability to carry out a financial service competently, with honesty and integrity. Before 2010, firms that are looking to be authorised by the DFSA in order to provide financials services from within the DIFC have huge hurdles to cross, whether they were a regulated entity in another jurisdiction or not. The DFSA, being a forward-looking regulator, introduced a “Representative Office” license in the second quarter of 2010, and this changed the landscape of the DIFC significantly. Firms that are now regulated in what the DFSA calls “Recognised Jurisdictions” such as Singapore, Hong Kong, the UK, etc. are now able to apply for a Representative Office license, which effectively is a branch of the regulated parent.

This is a perfect license for firms regulated in other jurisdictions and are looking to expand their client base in the Middle East from the DIFC. Whilst a representative office is restricted to only market the products and services of its parent, and not allowed to take on clients, it is a valuable first step for most firms to start building their client base without too much regulatory (and economic) burden. The authorisation timeline for a Representative Office is also significantly shorter than that of a fully licensed firm, and there is also no requirement to hire any “Mandatory Functions” such as a full time Compliance Officer and a full time Finance Officer.

To know more about getting licensed in the DIFC and setting up your financial institution, please feel free to contact me.
Email: felix@felixsim.com
UAE: +971 56789 1863
Singapore/International: +65 9838 4560

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Echelon 2011: Singapore

Jun 2, 2011 by

We will be in Singapore from 14-20 June and will be attending the Echelon 2011 event, which will be held on the 16 and 17 of June. In line with our previous event updates, we have asked the event managers to offer a discount to our group members. Register for your tickets on http://echelon.e27.sg/ using the promo code “apache“, and pay only SGD$120 instead of the regular price of SGD$250. Echelon 2011 is Southeast Asia’s biggest conference for technology startups. See the regin’s best new companies present their products live. Hear from distinguished global speakers like Derek Sivers (CD Baby), Jason Wishnow (TEDtalks), Richard White (Uservoice). Meet 1,000 of the region’s venture and angel investors, entrepreneurs, developers and regulators.

Event Info
Event Title
: Echelon 2011
Date: June 16 and 17
Venue: University Cultural Centre, National University of Singapore
Organizer: e27
Event URLhttp://echelon.e27.sg/
Email tocontact@e27.sg

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The Illusion of Free Advice

Apr 12, 2011 by

Lawyers charge for giving legal advice. Tax experts charge for giving professional tax advice. Doctors charge for giving medical advice. Many corporate finance professionals, tend to work on a “success basis”, seemingly giving free advice. Or not.

In the corporate finance and investment banking world, there is no such thing as free advice. There is advice that you get before you pay, and there is advice that you get after you pay. Many companies looking for funding prefer the former, without considering that the price to pay will be significantly higher in the former scenario than in the latter.

Let’s consider an example. Company A (“CO”) identifies a business opportunity and needs to raise $5 million additional capital for their business in order to pursue this opportunity. Like all opportunities, this one has a shelf life and CO has three months to raise the capital, or lose the deal. The opportunity cost is $15 million in potential profits.

Having exhausted their primary banking and financing contacts, the management of CO then decide to approach Investment Bank A (“IBa”) for advice on raising new capital for their business. IBa charges $20,000 advisory and 3% success fees for advising CO on their capital raising efforts, and provides a clear engagement letter which mentions the timeline and scope of work that will be provided for the advisory fees. CO, at the same time contacts Investment Bank B (“IBb”) and Investment Bank C (“IBc”) to ask for the same assistance in capital raising. IBb and IBc agree to work for free, and be paid only if they successfully raise the $5 million for CO. IBb asks for 5% success fee and IBc asks for 3% success fees with 5% equity stake.

Question: Which route would you go for if you were CO?

There is certainly a need for a reality check for everyone looking to raise capital for their business or projects.

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What Middle Eastern Investors bought in January 2011

Feb 10, 2011 by

Last year, we compiled an article summarising what Middle Eastern Investors bought in 2010. Despite the negative sentiments plaguing some countries in the Middle East, there were still significant deals and investments made by investors in the Middle East. We have received a lot of positive feedback, and this has encouraged our team to compile another list of what deals Middle Eastern Investors did or announced in the month of January 2011.

Click on this link to view the article: http://apacheadvisors.com/what-middle-eastern-investors-bought-in-january-2011/

Feel free to share any feedback that you have after reading the article.

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What Middle Eastern investors bought in 2010

Dec 18, 2010 by

The year is coming to an end, and not far away many of us can see the light to a recovery in the market and economy. They say 2010 was a tough year. A year of survival, consolidation, restructuring, and liquidation. Not so much for Middle Eastern investors. Despite the market downturn and volatility, many Middle Eastern investors were still being very active investors around the world. From January to December 2010, investors in the Middle East invested more than $14 billion in disclosed assets globally, across asset classes such as listed equities, private companies, land, etc. Qatar has been the most active investor in the Middle East, led by the investments made by Qatari Diar, Qatar Investment Authority, Qatar First Investment Bank and QInvest. We have summarised the known deals made by Middle Eastern Investors in 2010 in a post on Apache Advisors’ website. If there is anything we missed, please drop us a mail and we will update the post.

Click here to access the post.

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Investment Opportunity: Profitable Indian IT Company for SALE

Aug 8, 2010 by

Apache Advisors is acting for a privately-owned, India-based, global information technology services and consulting business. The business provides web application development, web designing, SEO, product engineering & re-engineering and remote database/ infrastructure management services. The Company has expertise in proprietary technologies such as .NET, C, C++ etc. as well as Open Source technologies such as PHP, Ruby on Rails etc.

It has a global client base extending from the USA, Middle East, Europe, Asia and ANZ, and client types include both end-user businesses as well as other technology firms which outsource their client work to the Company. Its clientele includes major players in travel industry, financial institutions, educational institutions, and resellers

The business has a profitable operating history of over 2 years, employs 70 staff (including senior management, project managers and engineers), and has 25 clients on monthly retainer contracts together with a good pipeline of potential business. The turnover of the business last year was USD $1.3 million and this will increase to USD $2 million for the current based on existing contracted clients and prospects.

The proprietors of the Company now wish to offer for sale a meaningful equity stake in the Company. They would, however, also consider selling the entire business to a more substantial organization in a similar industry in which the existing client relationships could be maintained.

If you are interested in investing, please get in touch with me directly. My contact details are below.

With kind regards

Felix Sim
Managing Director

APACHE ADVISORS
Office: +971 (4) 305 0635
Mobile: +971 55 887 6168
Email: felix.sim@apacheadvisors.com
Skype: felixs.im
Website: www.apacheadvisors.com

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Seatown Holdings launches with USD$3 billion in Singapore

Feb 10, 2010 by

Singapore investment fund Temasek Holdings has set up a new investment company called Seatown Holdings. According to the statement, Temasek’s senior managing director and chief strategist Charles Ong will be the chief executive of the new company. Mr Ong said Seatown is a global investment company, wholly-owned by Temasek Holdings. It is not immediately clear how Seatown’s mandate will be different from Temasek’s own investment role. Remember, Temasek’s investment mandate is to protect the monies of Singapore, including the pension monies (CPF) of its residents. Temasek set up Fullerton Fund Management a few years ago to manage 3rd party money. I suppose the real question to ask is how different would Seatown be from Fullerton Fund Management’s mandate. Or even, how different is it from GIC’s mandate? Some news reports say that in addition to investing the city-state’s own assets, Seatown will eventually open its doors to Singapore’s citizens, allowing them to co-invest with the sovereign fund.

I did some research and found a flowchart from this blog, where the author interpreted the money flow within this organisation. See the chart below (click on it for a larger version).


A spokesman said he had no further details beyond the statement. Temasek said it has seconded a small core team and is still in the process of building up the Seatown team. Earlier, Dow Jones reported that the new company will have an investment capital of around US$3 billion and would focus on investments in emerging markets with an emphasis on Asia.

Update: April 2011

It’s already doing deals. Seatown jumped in alongside its parent when the latter invested more than $600 million in convertible preferred shares of Chesapeake Energy Corp. of Oklahoma City. It also invested when Temasek bought shares in Chinese pork producer China Yurun Food Group Ltd. And the new fund firm is actively engaged in Asian debt markets, where its sheer size and ample dry powder make it one of the biggest investors in a region where other debt funds have less uninvested cash to play with. This plays to the strengths of Mr. Ahmad, a veteran of Credit Suisse Group and former hedge fund manager with a background in credit.

Seatown is the latest in a string of investment vehicles Temasek has helped bring into being. It provided about US$800 million in capital to Hopu Investment Management Co., making it the US$2.5 billion China-focused private equity firm’s largest investor. Hopu is run by Richard Ong, a former banker at Goldman Sachs Group Inc. and brother to Charles Ong of Seatown, and Fang Fenglei, chairman of Goldman’s joint-venture securities firm in China. Charles was formerly Temasek’s chief strategist and, before that, its chief investment officer.

Mr. Israel said that while it’s still early, Temasek is satisfied with the results of Seatown’s investments. He said the aim is for Seatown to manage money for institutional investors in three to five years, with the possiblity of letting retail investors in possibly in eight to 10 years, after one or two market cycles have put the company to the test.

Update: August 2011

Charles Ong and Nasser Ahmad, co-chief executive officers of Seatown Holdings, are leaving the hedge fund set up by Singapore’s Temasek Holdings.

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$30mm FOF launched in Asia

Feb 5, 2010 by

South Korea’s Woori Investment & Securities Co Ltd has released a statement which says it is set to launch a $30 million fund-of-hedge-funds with Temasek’s Fullerton Fund Management, as part of a restructuring of its hedge funds business. Restructuring, after some reading, means closing down a $60m hedge fund and redeploying half of that money into a Fund of Funds product, which will be managed by Woori but investment advisory will be provided by Fullerton.

If you’re in the Asian (inc. Japan) equities long/short business, there’s probably $1mm to $2mm for you from this new FOF so go ahead, send your pitch books now!

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What Bernie Madoff could not steal from me (a video)

Feb 1, 2010 by

Not exactly what you were expecting, but this video is pretty interesting. Enjoy.

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HR MANAGER REQUIRED FOR A FINANCIAL CLIENT- Westchester, New York

Jan 27, 2010 by

Responsibilities will include but are not limited to:

  1. Responsible for understanding, interpreting, administering and mediating any and all forms of inquiry that arise relating to human resources;
  2. Maintain compliance with all state and federal laws pertaining to human resources employment in all regions, updating forms, policies, procedures and programs as needed;
  3. Manage human resources operations by recruiting, selecting and orienting staff;
  4. Assist managers with employee performance management, including 360 feedback performance, annual reviews, development, training, coaching and counseling;
  5. Responsible for administering employee retention plan, employee benefits and salary updates;
  6. Conduct exit interviews as needed;
  7. Attend seminars, conferences and keep abreast to changing laws and market trends; and
  8. Mentor junior staff.

QUALIFICATIONS:

  • 5-7 years of progressive, generalist HR Management experience with 3+ years of direct Supervisory responsibilities, preferably within the Finance sector
  • Bachelor’s degree in Business Administration, Human Resources/Organizational Development required
  • PHR/SPHR certification preferred
  • Comprehensive knowledge of general employment legislation and the application of regulations in the areas of Title VII, EEOC, FLSA, ADA, FMLA, COBRA, HIPPA and related employment laws
  • Ability to analyze, identify and develop policies and procedures
  • Prior experience integrating satellite offices
  • Recruiting new employees and on-boarding experience
  • Prior experience conducting 360 and annual performance reviews
  • Exhibits proactive, highly adaptable, level-headed management approach
  • Excellent interpersonal, presentation, communication and writing skills
  • Ability to multi-task, prioritize and establish goals
  • Knowledge of ADP Payroll, Excel, Word, Power Point and General Microsoft Office Applications

Salary – Around $100-115k plus bonus

**MUST HAVE A STRONG FINANCIAL BACKGROUND FROM EITHER AN INVESTMENT BANK, HEDGE FUND, PE FUND ETC**

If you are interested in this position, please drop me an email.

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Middle East Hedge Funds Group (4th February 10)

Jan 19, 2010 by

The Middle East’s only hedge fund group is organising a networking evening bringing together Middle Eastern and international investors, hedge funds and their services providers.

Venue: Dusit Thani Hotel, Sheikh Zayed Road, Dubai

Date: February 04, 2010

Time: From 7:00PM

Fees: $40 (including first drink)

As this is our first event, we are keeping it to a maximum of 50 attendees so networking can be done more effectively. All attendees will have their company profiles featured in the Middle East Hedge Funds Group newsletter, free of charge, which goes out to 1,749 investment professionals who have interest in the Middle East.

We look forward to meeting you at the event.

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Get Funded, now.

Jan 19, 2010 by

If you are looking for a loan (individuals and businesses), and have problems getting the banks to listen, you will want to continue reading this post. There is a new Asset Based Loan program that will give individuals and businesses up to 90% LTV against a portfolio of listed securities. This is backed by a reinsurance company. For more information about this ABL program, visit the ABL application page, now.

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Latest Hedge Fund Jobs: 24-Dec-09

Dec 24, 2009 by

  1. Turnaround, Restructuring, Bankruptcy Specialist (VP level & Director Level), 6-7 years experience or more – New York
  2. Infrastructure Analyst/Senior Analyst (Infrastructure Advisory firm) – Washington
  3. Marketing/Communications Manager, 5 years plus experience – New York
  4. HR Manager/Director (Generalist) 5-7 years experience, financial experience preferred – New York

If (and only if) you match the requirements and are interested in either of the roles above, drop me an email.

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Power Projects, anybody?

Dec 20, 2009 by

A contact is looking for projects which are ready to build and or to invest.

  • The permissions / approvals, executive summary / business plan 1 page, in case of power projects PPA, etc. have to be ready to build the projects.
  • Existing profitable plants, etc.

As usual, drop me a note if you have something to discuss.

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Shawarma Capital by Nizar Alshubaily

Dec 17, 2009 by

PDHeadInSand

A very interesting and novel piece by Nizar Alshubaily was written as a sequel to an equally brilliant piece by the same author. I’m extracting a few of my favourite lines, but the full article can be found here.

Countless firms no longer have the financials on their web sites and you have to register to request them. I had myself and 4 of my friends register with one and we have had no success so far. Far be it for me to assume that their financials are a disaster. Where one firm were making a least some attempt at financial transparency by disclosing their defaults  the management being interviewed on television couldn’t remember the total amount of default involved, they said they didn’t have that number immediately available.

Of course let us not forget the ever increasing number of CEOs who have suddenly left their organizations “for personal reasons”. One company claimed its CEO resigned to concentrate on more personal issues relating to spending more time with his family. Three months later his picture was in the paper as having become a CEO of another company. I feel sorry for his family; I guess they now know their dad thinks they’re boring.

Denial. Some call it The Ostrich Effect, an aversion to receiving negative information. If you don’t talk about it, it hasn’t happened; it will just go away on its own. It is based on the myth of the Ostrich burying its head IN the sand to avoid danger. Not true, the Ostrich places its head ON the sand to relax its neck muscles and hide from predators. Why so many otherwise intelligent people still use this analogy is beyond me. If the Ostrich buried its head, it would die from lack of air.

Once again, the full article can be found here.

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