Apollo Investment Management
What was new - 2012 archive

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5 Dec 12:
The NAV of the Apollo Asia Fund fell 0.4% in November, to US$1,772.93. The chart page will be updated next month.

26 Nov 12:
Patti Waldmeir says that she is 'refusing to donate even one renminbi this holiday season, unless I know exactly how it will be spent'. I have made a similar resolution, cautioned by knowledge of some black holes and many more mundane disappointments.

Those requesting donations for emergency relief or projects should report on progress and completion. Those requesting donations on an ongoing basis should report formally once a year, with details of spending and balances, audited financial statements if appropriate, and a candid report of successes, challenges, and strategic objectives. Such reports should be available to all donors. If contributions are sought from the public, or from taxpayers, the reports should be published on the web.

Bloomberg's recent report on the high percentage take and tactics of the fundraising industry in the US was an eyeopener. There are many problems in Asia too, with the remuneration and the uncontrolled propaganda of middlemen, and also with the uses of funds. The scams aside, even reputable charities with well-intentioned principals sometimes allocate funds in surprising ways. Some allow inaccurate information to be disseminated by the fundraisers. This can seriously undermine their long-term support base. I call on the good organisations to lead by example, and provide some much-needed models of accountability and stewardship for each country.

21 Nov 12:
Jeremy Grantham's 3Q report discusses tightening resource constraints, rising environmental costs, and the possibility of environmental disaster. There is a superb one-page explanation on the confusion inherent in GDP: the greater our collective pain, the higher the GDP will appear. 'The sooner we adopt a more complete accounting that comes closer to measuring true utility, the sooner we might start to protect our collective long-term well-being.' This is a masterly overview of the enormous challenges ahead.

Since HSBC is the administrator and custodian of Apollo Asia Fund, and banker to many of us in this office, we and several of our investors were sad to read the recent allegations by Global Witness: a press release dated 2 Nov entitled 'HSBC rakes in US$130 million bankrolling rainforest destruction and human rights abuses in Malaysia's corrupt forestry sector', and a 24-page report. These suggest that HSBC's involvement contravenes its own policies on sustainability, and on social and environmental responsibility.

Press enquiries to HSBC seem to have received only bland responses; the Economist noted that the report suggested 'a blot on HSBC's copybook', and that its continued involvement 'allows logging firms to claim credentials they don't deserve'. We assumed that HSBC might have required time to prepare a more convincing response. As time elapsed, we were surprised to find no reference at all on the bank's own website (and none to date, under the headings 'newsroom', 'investor relations', 'presentations and webcasts', or 'sustainability' on hsbc.com). We enquired ourselves, and received a copy of the letter sent to Global Witness in October. This reaffirms HSBC's policies, and claims robust implementation; it says it is exiting relationships with clients that have failed to take 'credible steps' to meet its criteria, and values the input of NGOs in helping to improve its policies and assess the 'commitment, capacity and track record' of its customers to implementing them. Global Witness noted these points in their final report, while remaining unconvinced: it considers that 'HSBC's forest policies are ahead of most banks' but that 'its services for this notoriously corrupt and destructive industry raise serious questions regarding HSBC's commitment to the voluntary and regulatory standards'. On page 5, it made eleven specific recommendations to HSBC, which this reader thought constructive. Given the lack of a public response from the bank, which may be hoping that this storm has already blown over, we have to hope for an effective internal tightening. Many HSBC employees, as individuals, will be concerned. Let us ask all those we meet whether they are happy with the bank's current activities and satisfied with its internal response.

19 Nov 12:
'Renewable energy: the vision and a dose of reality', by Nicole Foss aka Stoneleigh, is the most comprehensive account I have seen of the challenges and unforeseen consequences. It explains how new complexities, instability, and inefficiency for power grids have been leading to new complexities, instability, and inefficiency of capital allocation for businesses, governments, and society at large. Pension funds may no longer be able to count on the predictability of utility returns.

On a trip to Thailand a few months ago, I was startled by the number of companies with previously straightforward business models announcing plans to diversify into solar power. In none of our meetings was this driven by strategic fit, but rather by post-flood despondency on the predictability of core businesses, post-QE despondency on the adequacy of deposit rates, and promised returns in the teens on selling renewable power to the grid. Disconcertingly, the terms available seemed to vary from case to case.

Efficient allocation of capital is as important to societies as it is to individual companies and to us as investors. Policymakers everywhere have the opportunity to learn from the problems now being experienced in the pioneering countries, but the unwillingness of most of us - not just our leaders - to acknowledge unpalatable realities is hampering intelligent debate. The resultant obfuscation results in greater complexity, which further impedes sound decision-making. The costs to society seem likely to rise.

7 Nov 12:
Gail Tverberg's latest article, 'Financial issues affecting energy security', explains the implications of the increasing burden of energy subsidies and growing energy import dependence in Egypt and India - which should also be a wake-up call to Asia's other energy-subsidisers, Malaysia and Indonesia.

5 Nov 12:
The NAV of the Apollo Asia Fund rose 2.6% in October, to US$1,780.48; charts.

28 Oct 12:
Apollo Asia Fund won this year's AsiaHedge award in the Asia-ex-Japan category, based on NAV and Sharpe Ratio for the year to August 2012, after reaching the list of nominees for three years in a row. Performance is based on large doses of luck; please join us in hoping that this holds.

24 Oct 12:
The page on investment philosophy has belatedly been updated, although it could probably be summarised as 'school-of-Buffett-and-Grantham' - with thanks to many others who share their hard-won investment experience.

23 Oct 12:
Readers with money market funds or discretionary fixed-income portfolios may wish to check their statements for notes issued by Equisar International Inc & SSG Resources Ltd - special-purpose-vehicles set up for the State Government of Sarawak. Their stated purpose is to on-lend the funds raised, 'principally for the financing of strategic development projects of the State, including but not limited to investments in... the Sarawak Corridor of Renewable Energy (SCORE)...[etc, &] the development of the biotech sector, save that the proceeds shall not be used for direct investments in logging activities or the construction or operation of dams.' [Our italics.] The issuing companies are not guaranteed by the state government, although there are annex letters undertaking that funds will be made available to meet their commitments. This does not seem a particularly safe proposition, given the political backdrop and Sarawak's capital allocation record. Investors concerned about logging and dams seem unlikely to be persuaded by the figleaves, which suggest that the notes were destined for yield-prioritising portfolios of Other People's Money.

The two issues for Sarawak, US$800m each, were arranged and placed by Goldman Sachs, which also handled an interesting issue of US$1.75bn for 1MDB Energy, an affiliate of the controversial 1Malaysia Development Berhad. Most of that issue was rumoured to have been placed with Abu Dhabi, which could have diversified its US fixed-interest holdings, added a yield premium (4.25% over Treasuries), and picked up a fee for guaranteeing the paper - and as a sovereign investor with oil clout would have more leverage than most of us when it comes to repayment. Observers may wonder about the total size of the Malaysian government's off-balance-sheet debt.

19 Oct 12:
Gail Tverberg explains 'Why natural gas isn't likely to be the world's energy saviour'.

16 Oct 12:
I just choked on my tea. Sarawak chief minister Tan Sri Abdul Taib Mahmud said 'the move to increase the contribution of hydro electricity was part of the state's energy policy to utilise more greener and renewable resources. With this energy policy, we are going to have quite an enjoyable and pleasant environment.' It had nothing to do with the timber or the megaprojects, then? I wonder whether the displaced persons agree. (More on the Bakun Dam white elephant: 'They have resettled 10,000 people, it has had a devastating impact on the area and the people who live there. There is no market for the electricity.' And more on its safety.)

Trees are also endangered in KL, where more beautiful mature roadside trees are being felled by the day (or, increasingly, by night) - and visitors from the Garden City to the south find that our streets are several degrees hotter. It was encouraging to read how catastrophe enhanced appreciation of trees in the UK...

15 Oct 12:
Following a weekend of torrential rain, flooding and traffic jams in KL, and pursuant to the 3Q report, entitled 'Cognitive Dissonance':

'The notion that increased consumption leads to increased happiness is self-evidently false, yet consumption remains the focus of our economy and society', says Charles Hugh Smith. 'The "American Dream" [like the Chinese dream]... is a monoculture of the spirit, as brittle and prone to collapse as any other monoculture.' He describes Attention Deficit Trait: 'previously competent people become harried underachievers who berate themselves for their inexplicable loss of competence... ADT... arises not from a single crisis but from a chain of events... experienced as an unending series of emergencies.' He asks, 'What is the point of prosperity?'.

'In developing Asia... societies are not only addicted to oil, but their economic-growth projections and social paradigms revolve around expanding its use far into the future' observes Will Hickey: 'As Arctic Melts, Business As Usual'.

Michael Pettis explores logical and emotional arguments in 'How to be a China bull'.

David Rosenberg recommends prioritizing Safety and Income at a Reasonable Price (SIRP, not GARP). There is a figure in the presentation who may seem familiar...

12 Oct 12:
A reader noted the omission from this site of the Robert Graves quote: 'There's no money in poetry, but then there's no poetry in money' (different sources suggest slight variations). But there is still room for doggerel... and that page has been updated in the hope that we may find poetry too.

The 3Q report has been posted.

4 Oct 12:
The NAV of the Apollo Asia Fund rose 3.6% in September, to US$1,735.24; charts.

An important question and disturbing back-of-envelope calculations from Eric Sprott and David Baker: 'Do western Central Banks have any gold left?'

24 Sep 12:
Persuasive graphics show a South East Asian oil peak in the rear view mirror.

10 Sep 12:
A useful checklist: '10 rules for dealing with the sharks on Wall Street'. We thought of another a few months ago, and it dissuaded us from a so-good-there-must-be-a-catch-we-haven't-spotted deal: consider which party has the larger back office and whether you have the spare management capacity to deal with any unforeseen complications.

9 Sep 12:
I have belatedly caught up with the magnum opus of Dermot O'Connor, aka Idleworm, completed and released in February. Regular readers may remember his 2 minute explanation of the impossibility of infinite growth on a finite planet, linked in our 4Q10 report. The completed animation lasts 35 minutes, and is an excellent and entertaining introduction to the challenges of energy and resource limits, which I expect to be vital to all of us, and to make the next few decades for investors very different from the last few. Distilling these issues so memorably took years of work. I don't like the title, but recommend the half-hour. Please view! YouTube; download & other options.

5 Sep 12:
The NAV of the Apollo Asia Fund rose 2.9% in August, to US$1,675.29; charts.

Historical perspective: 'The long-term tie between energy supply, population, and the economy'. (For those whose interest extends to the comments, there are more here.)

27 August 12:
'Want to go for Astro IPO?' Our preference is to invest alongside entrepreneurs who work for all shareholders... this series of forced delistings (flashback to 2003 when pirates stole Armada) and relistings (Maxis 2009, Bumi Armada 2011, Astro 2012) reflects poorly on the controlling shareholders and on Malaysian regulators. So does the poor disclosure, highlighted by CGmalaysia: 'Astro playing the listed/delisted/relisted game'. Any investor should read the linked blogs to ensure they know the history omitted from the voluminous official prospectus.

3 August 12:
Jeremy Grantham says 'Welcome to Dystopia! Entering a long term and politically dangerous food crisis'. His 25 minute video interview with the University of Cambridge Programme for Sustainable Leadership is well worth watching.

2 August 12:
The NAV of the Apollo Asia Fund rose 4.6% in July, to US$1,628.39; charts.

24 Jul 12:
Must read: Bill McKibben on 'Global Warming's Terrifying New Math'.

18 Jul 12:
The 2Q report has been expanded with a postscript adding further international data on the Malaysian energy situation, and an alarming chart of the steep fall in oil production.

This time last year I was writing about bureaucracy, overcomplexity, and the cordyceps boom in Greater Tibet. National Geographic's August edition has an update, and describes the medicinal hopes.

16 Jul 12:
The 2Q report has been posted.

Investors in Apollo Asia Fund currently receive monthly statements from HSBC in the mail, following a regulatory edict; we are aware that many of you would prefer to receive statements only annually, or when your holdings change, as the NAV is updated monthly on this website. The Securities Commission has now clarified that while monthly hard copy must remain the default option, investors may opt out by sending alternative instructions in writing to the Administrator, HSBC Institutional Trust Services (Asia) Ltd.

'Top marine scientists warn reefs in rapid decline'; 'a world without coral reefs', threats to the ecosystem in Mabul and Sipadan - come to Southeast Asia and see our magical marine creatures while you can!

5 July 12:
The NAV of the Apollo Asia Fund rose 2.5% in June, to US$1,557.29; charts.

4 June 12:
The NAV of the Apollo Asia Fund fell 1.3% in May, to US$1,519.44; charts.

3 May 12:
The NAV of the Apollo Asia Fund rose 3.9% in April, to US$1,539.93; charts.

4 Apr 12:
The 1Q report has been posted.

3 Apr 12:
The NAV of the Apollo Asia Fund rose 3.9% in March, to US$1,482.34; charts.

5 Mar 12:
The NAV of the Apollo Asia Fund rose 6.2% in February, to US$1,426.29; charts.

21 Feb 12:
A fascinating story of 8+ Hong Kong listed companies from David Webb, who asks 'Do our country's leaders in Beijing really approve of what Xinhua is doing?': 'Raking muck, Part 1'.

8 Feb 12:
The NAV of the Apollo Asia Fund rose 5.2% in January, to US$1,343.15; charts.

3 Feb 12:
The Jan valuation has yet to be finalised by HSBC, and due to Malaysian holidays may now be ready only next Wednesday: apologies. We estimate that NAV rose by a little over 5% for the month, lagging the 10% increase in the index.

26 Jan 12:
The tragedy of the commons: 'In Mackerel's Plunder, Hints of Epic Fish Collapse'. Fisherman's response: 'Weve got to fish harder before its all gone.'

8 Jan 12:
The 4Q report has been posted.

5 Jan 12:
The NAV of the Apollo Asia Fund rose 2.0% in December, to US$1,277.06; charts.

Claire Barnes

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