Apollo Investment Management
What was new - 2009 archive

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11 Dec 09:
There is still no official update on Aero Inventory, but the Times reports that the board has asked the Serious Fraud Office to investigate; that the problem did indeed arise in the Canadian business, ACTS, bought from Sageview Capital and KKR Private Equity Investors; and that the administrator says shareholders are unlikely to see any return. The administrator should surely be required to report regularly to shareholders through the London Stock Exchange? and the LSE should surely be required to maintain a full public record of listed-company announcements, rather than deleting all evidence?

3 Dec 09:
The NAV of the Apollo Asia Fund rose 0.4% in November, to a fractional new high of US$926.47 (charts), after full provision against Aero Inventory and our distressed Chinese manufacturer, CHT Holdings. The hapless shareholders of Aero Inventory have been given no further information as to the investigations or current status: the administrator should surely report more regularly. The Financial Reporting Council, 'responsible for promoting confidence in corporate governance and reporting', should be taking a close interest in the accounting and reporting issues, given the record speed of transition from main-board-upgrade to administration - "from buy to bust in a matter of days", as Investor's Champion observed, while asking shareholders to write to the LSE.

Investors may be relieved to hear that 'the administration is examining strategies for encouraging the ownership of fluffy kittens...'

13 Nov 09:
The Fund has taken a hit this month. One of our holdings, Aero Inventory plc, went into administration on Wednesday, and we've written our holding to zero. If it proves to have residual value, there will be a writeback. Two thirds of the UK staff have been fired, so breakup appears inevitable. The last price was below book, but the company was highly leveraged, breakup has costs, and even the last audited figures of June 2008 are now in question. So zero seems a prudent valuation, for now.

Much remains unclear, and LSE announcements have been terse. Investor's Champion of the UK has written a succinct account (available on free registration) of recent developments, and raises points of wider interest. The speed of deterioration, and infrequency of reporting to shareholders, support the case for quarterly reporting - which might not have changed the outcome, but would make for a more efficient market. In this respect, Thailand and Indonesia are far ahead of the UK.

You may wonder why we held a UK share in an Asian portfolio. When originally purchased, Asia was a large part of the company's business - and this continued to grow, so it would have been churlish to eject just because the rest-of-world business then grew even faster. In recession, many risks were evident (and had appeared to be more than adequately reflected in the price), but management statements were reassuring, and focussed on opportunities. We live and learn. Or at least we try. Apologies. The writeoff has offset other month-to-date gains, and NAV at today's close is estimated to be down 0.5% at US$918.20.

3 Nov 09:
The NAV of the Apollo Asia Fund rose 0.8% in October, to US$922.82: charts.

30 Oct 09:
A recent visit to Beijing included a visit to an excellent small museum commemorating the achievements of Guo Shoujing (1231-1316), the eminent scientist, astronomer and water engineer who linked the city to the Grand Canal and redirected its water supply. The museum is in the delightful Huitong temple at Jishuitan, on the side of the lake which in Yuan dynasty times was much larger and the site of a bustling port. The museum deserves to be much better known, and is easily accessible with its directions & map.

28 Oct 09:
The first two CEU lectures by George Soros are models of clarity, explaining the history of a super-bubble based on market fundamentalism and why new economic thinking is required. Transcripts are provided.

27 Oct 09:
'HKEx: no reform to placing mandate... or anything else': David Webb laments Hong Kong's weak protections and short-sighted regulators. 'The rule of law isn't worth much if the rules are stacked against you.'

6 Oct 09:
'Aquacalypse now: the end of fish' - no exaggeration, and a rational call for an end to fishing subsidies. Meanwhile, in Southeast Asia, fishing with dynamite and cyanide continues. Worldwide, the devastation caused by destructive fishing is evident to divers - and probably to all prepared to see.

5 Oct 09:
The 3Q report has been posted.

2 Oct 09:
The NAV of the Apollo Asia Fund rose 1.4% in September, to US$915.31: charts.

7 Sep 09:
HKEx proposes to change the rules on open offers and rights issues. Some of the changes are against investor interests. The invaluable David Webb has outlined the problems and set up a feedback poll: 'HKEx rights issue & open offer proposals'. All investors in Hong Kong, including those with an indirect interest through AAF or other funds, please participate.

2 Sep 09:
The NAV of the Apollo Asia Fund rose 1.6% in August, to US$902.93, fractionally (and perhaps briefly) above its previous peak: charts.

30 Aug 09:
Malaysia is making the international headlines again. Pictures of the Penan protests in Sarawak are memorable: see 'Spears versus bulldozers in Borneo', 'Blowpipes thwart Borneo's biofuel kings', and the regular updates on http://whatrainforest.com (where one may also view online the 'What Rainforest?' film which we recommended in October). Bloomberg's notable headline 'Getting Rich in Malaysia Cronyism Capital Means Dayak Lose Home' tops an article which will be of interest to investors in Rio Tinto, Accor, and Tenaga Nasional, as well as oil palm plantations and palm-oil users.

6 Aug 09:
'Naive retail investors and China itself will suffer a lot when the nation's overvalued property and asset markets collapse', says Andy Xie.

5 Aug 09:
The NAV of the Apollo Asia Fund rose 5.9% in July, to US$888.66: charts.

A reader discovered that the key to obtaining annual reports from the SGX website is to ignore the 'Select Type' instruction & just press 'Go' after the company name, & comments 'poor debugging'. Poor website design, in general; and poor customer response - I was interested to hear from other frustrated users. Thanks for all feedback.

23 Jul 09:
I have been reading with interest a discussion of 'toxic trading', eg from Whitney Tilson, this example of vanishing liquidity, and a succinct recent summary from Themis Trading. I now have new theories, with hindsight, about some of the strange execution difficulties we have recently experienced in Asia; but as long-term buy-and-hold investors we transact too infrequently to have much accumulated data, and I would be very interested in input on Asian execution problems. Certainly some stocks are much harder to transact than the reported volumes would indicate, which makes it hard to estimate appropriate position limits.

The point on the conflicts of interest with a for-profit exchange is a good one. Meanwhile, while this webmaster welcomes feedback on broken links, formatting errors, etc, the SGX webmaster replied to our recent error report (as to previous error reports) that no problem was to be found. Strangely, our third computer must also be at fault...

20 Jul 09:
'Too many shareholders not voting', reported the FT last week, providing a good list of the problems across Asia, notably the show of hands and the inadequacies of proxy voting.

Trying to find basic information also remains ridiculously inefficient. The advent of the internet should have solved the problem, but my colleague Ines in Hong Kong has been hunting for annual reports of a Singapore-listed company, available neither on its own website nor on that of the Singapore Exchange. I tried looking for the latest annual reports of three companies on SGX, and found none. Fortunately OCBC & Singapore Airlines do have good investor-relations websites of their own; Cityneon, whose hapless shareholders have put up with suspension since November, and might wish to read the annual report published in April, does not. The major formal documents on any listed company should be readily available to the investing public for at least twenty years, and the exchanges should take responsibility for ensuring good access.

As reported to the webmaster, SGX also needs better web design. For each of the three companies, I looked for the latest, published, annual reports, in three different sections of its website, starting with 'Annual / Financial Reports' and clicking all relevant options - five or six possibilities for each company and each year! eg for OCBC these options 'ANNUAL REPORT 2008' (x2), 'ANNUAL FINANCIAL REPORT 2008', 'ANNUAL REPORT 2007-2008', 'ANNUAL REPORT 2007 / 2008', 'ANNUAL REPORT 2007/2008' all returned the response "No Data Found!". Under 'Company All-In-One Info', no annual reports were provided (although curiously, this did produce Cityneon's IPO prospectus, for which both the SGX 'Prospectus' section & OPERA had come up blank). Under search, using '[3 different company-names as-listed-by-SGX] annual report', the invariable response was 'no results were found for this query'. Obtaining basic information should not be this hard!

6 Jul 09:
The 2Q report has been posted.

In the 2009 Reith lectures, Professor Michael Sandel explored market fundamentalism, and how 'without ever deciding to do so, we drifted from having a market economy to being a market society'. He argued eloquently that markets should be kept in their place: 'democratic governance is about much more than maximising GDP, or satisfying consumer preferences. Itís also about seeking distributive justice; promoting the health of democratic institutions; and cultivating the solidarity, and sense of community, that democracy requires.' Highly recommended listening (or reading: transcripts for each lecture are under 'programme information').

3 Jul 09:
The NAV of the Apollo Asia Fund rose 7.5% in June, to US$839.13: charts.

18 Jun 09:
Al Jazeera's investigative journalists have been in the forefront of several important stories in SouthEast Asia. For an excellent update on the Lapindo disaster, read 'Indonesia's muddy justice'.

'Inflation or deflation?': the investor's dilemma in song, by Merle Hazard.

17 Jun 09:
'Markets are trading on imagination', said Andy Xie, forecasting stagflation and a market crash in an article published on 9th June: 'Tight spot for Fed, blind spot for investors'.

16 Jun 09:
'BRIC group plans own revolution', says W. Joseph Stroupe: Asian bond market development, long overdue, could accelerate.

11 Jun 09:
Regarding China's latest increases in tax rebates to exporters, James Fallows considers that 'this does not bode well'.

10 Jun 09:
The new film 'End of the Line' is generating long overdue attention to the crisis of overfishing: the Director's Q&A is a short but compelling read. Before you next eat a scallop, please read George Monbiot on the carnage caused by dredging.

2 Jun 09:
The NAV of the Apollo Asia Fund rose 17.1% in May, to US$780.24: charts.

5 May 09:
The NAV of the Apollo Asia Fund rose 15.4% in April, to US$666.42: charts.

29 Apr 09:
John Hussman explains with unusual clarity 'that the money that the [US] government is throwing around represents a transfer of wealth from an unwitting public to the bondholders of mismanaged financial corporations... we will commit our future production to foreign hands, or we will commit about a quarter of US non-financial profits and personal savings to these bondholders for at least the next decade': 'Money Doesn't Grow On Trees'.

21 Apr 09:
Simon Johnson, a former chief economist of the IMF, argues eloquently that US banks should be nationalised and broken up, and explores the cultural evolution which led to the crisis, in 'The quiet coup'.

20 Apr 09:
The Fund's audited financial statements for 2008 have been e-mailed to investors, but some e-mails have bounced. Please let us know if you have changed your e-mail address, or if you would like a hard copy.

7 Apr 09:
The 1Q report has been posted.

'Political panic may have marginally reduced the depth of the recession, but it will enormously increase its duration', says Martin Hutchinson in Prolonged global winter, alleging that if the Bank of England's one-quarter gilt purchases are annualised, 'Britain is currently "printing money" faster than Weimar Germany'.

The rapid deterioration in UK public finances will not have been helped by the private finance initiative (PFI), according to George Monbiot: 'You are being fleeced...' This shift to off-balance sheet funding allowed cosmetic deficit improvements in the short term, while imposing huge costs and contingent liabilities in the long term. The same appears true in Malaysia.

UK law is very clear on the duties of an agent, according to Jonathan Davis, who asks if agency law is understood by everyone in the financial world. It is not.

2 Apr 09:
The NAV of the Apollo Asia Fund rose 1.6% in March, to US$577.39: charts.

31 Mar 09:
John Hussman has written a superb overview 'on the urgency of restructuring bank and mortgage debt, and of abandoning toxic asset purchases' in the US. 'Attempting to avoid the need for debt restructuring by wasting trillions in public funds increases the likelihood that the current economic downturn will be prolonged, places a massive claim on our future production in order to transfer our nation's wealth to the bondholders of mismanaged financial companies, and raises the likelihood that any nascent recovery will be cut short by inflation pressures. We are nowhere near the completion of this deleveraging cycle.' Essential reading.

3 Mar 09:
The NAV of the Apollo Asia Fund fell another 4.8% in February, to US$568.46: charts.

20 Feb 09:
Chris Wood of CLSA has highlighted an announcement which I had overlooked. The Reserve Bank of India is encouraging the restructuring of urban cooperative banks by issuance of 'Innovative Perpetual Debt Instruments' in partial exchange for deposits over Rs 100,000 (around US$2,000): RBI 2008-9/358, 23 Jan 2009. Chris suggests that individuals avoid holding concentrated large deposits, lest the idea catch on, since taxpayers are wearying of bailouts and 'wealthy' savers are accorded little sympathy. On a voluntary basis, the scheme has considerable merit: many depositors who have no access to bond markets might be tempted by senior debt instruments of say HSBC at a decent yield, given current deposit rates of 0.01%.

18 Feb 09:
John Hussman explains why the US authorities should buy distressed assets only if they can buy all the parts of a securitisation and go on to restructure the loans, and that any other purchase is throwing good money after bad, in 'How to climb out of the global financial hole'.

6 Feb 09:
Willem Buiter discusses submerging markets crises: 'Fiscal expansions in submerging markets; the case of the USA and the UK'.

5 Feb 09:
Traditional accounting standards should be reinstated, says Jesus Huerta de Soto in 'The failure of accounting reform'. This has our vote.

3 Feb 09:
The NAV of the Apollo Asia Fund fell 3.1% in January, to US$597.14: charts.

28 Jan 09:
Asia Sentinel reports on 'a military out of control' in Thailand, and Al Jazeera that 'Rohingya survivors face deportation' to Myanmar, which they fled for good reason. Shawn Crispin discusses 'Abhisit's conservative stripes' and the clampdown on dissent.

22 Jan 09:
HSBC now tells us that the "urgent request for documentation" dated 31 Dec 2008 was sent to all investors in all funds that they administer, and may be disregarded. We have requested that if new legislation or regulations relevant to our funds should ever require additional documentation to be provided, they will provide details of such legislation/regulations, and send individual letters advising what documents they already have and what exactly might be required. Mr Alfred Fung (Investor Services, HSBC Securities Services, investorservices@hsbc.com) has said that they would do so, and that they would first inform the fund manager. Let's hope that our regulators have the sense not to add unnecessary bureaucratic burdens - especially in the Year of the Ox!

Companies in Hong Kong frequently report financial results very late. Extending the blackout for directors' dealings from one month to the whole gap between the period-end and reporting would encourage earlier reporting, and reduce insider trading. SEHK, after lengthy consultation, was due to implement the extension on 1 Jan. Last-minute pressure from directors caused a delay, until 1 April, and there is a danger of further backsliding. Earlier coverage by David Webb ('Tycoons whinge over blackout period'), Steve Vines ('Keeping the trading at home in Hong Kong'), and The Economist ('Indefensible') explained the extraordinary influence of the opposing lobby. Vines commented that:

'As for the directorsí argument that a longer blackout period would discourage individuals from becoming directors of listed companies, this inadvertently reveals the crux of the campaignersí fundamentally flawed thinking. Surely company directorsí primary responsibility is to ensure the proper management of a corporationís affairs, not to be dabbling in its shares. Only a body of directors primarily intent on yielding profits from trading in their own shares could even think this was a problem.'

ASrIA, the Association for Sustainable & Responsible Investment in Asia, is encouraging investors to express their views. It has prepared a brief overview, a longer analysis, and a draft letter. Please write.

21 Jan 09:
'The question we ask today is not whether our government is too big or too small, but whether it works... Where the answer is no, programs will end.' (President Barack Obama, inaugural address.) Hope for a bureaucratic rollback? Time for a people's campaign?

Brian McCartan reports an unfolding refugee tragedy, Thailand's agreement to repatriate to Laos 5,000 Hmong, 'the persecuted remnants of a guerilla army trained and paid by the United States', now in a camp denied access by international monitors.

20 Jan 09:
The bureaucratic monster has arrived in Asia. No sooner had we written (13 Jan) about the disastrous side-effects and unintended consequences of money-laundering legislation, from observation of banks across Europe, than we discovered that HSBC Institutional Trust Services (Asia) Ltd, the administrator of Apollo Asia Fund and Phoenix Gold Fund, had sent out peremptory notices to some of our investors, headed "urgent request for documentation". There was no consultation with the fund management company, and we have written to HSBC expressing our disappointment with the tone of the letter and requesting a number of clarifications - on the regulations necessitating new demands, on the details, and on the documents already in its posssession. Investors may wish to do likewise. We await an answer; copies of our e-mail are available on request.

With heightened contacts between banks and governments, and belated official acknowledgment that the War On An Emotion was ill-conceived from the outset, could there be an opportunity to discuss the rollback of measures so detrimental to banks' efficiency in their primary tasks?

16 Jan 09:
'Will the Pacific tuna follow the buffalo into extinction?'

14 Jan 09:
'Shipping rates hit zero as trade sinks', says Ambrose Evans-Pritchard; 'China's import collapse tells an ominous story for its trade partners', says Philip Bowring.

The murder of Lasantha Wickrematunge, editor of the Sunday Leader in Sri Lanka, is a tragedy ('The man who changed Sri Lankan journalism'). The editorial he wrote for this contingency, 'And then they came for me', is extraordinary. RIP.

13 Jan 09:
"The US goverment has a technology, called a printing press..." observed Ben Bernanke in the 2002 speech which made his nickname. Those debating mechanics of fiscal stimulus may wish to look at the latest technology from Malaysia, a computerised lucky draw of lucrative government contracts. Malaysia has done a lot of stimulating in recent decades.

'The financial services industry's free lunch' discusses the high cost of investing through intermediaries and the lack of disclosure in Asia by banks and others pushing very expensive products to unsuspecting retail and corporate customers. The results of an oversized financial services industry - the impoverishment of the once-wealthy Gotrocks by the legion of Helpers - were memorably described in Warren Buffett's 2005 letter. Full disclosure of vested interests would be desirable.

I see two other large and growing problems which deserve attention. One is the widespread growth of bureaucracy to a degree which is counter-productive, due not just to the burden on those surveyed, but also to the gathering of excessive data which impedes the ability of regulators to spot problems among the trees and to exercise judgment on what is really important.

Another is the range of obstacles to individual investors who wish to pursue an independent investment strategy. One such obstacle is the lack of effective bond markets in Asia, discussed in the 4Q report. Many individuals bought Lehman mini-bonds, dangerous high-yield funds, and structured products, because they had no alternative to local equities and property, other than cash at interest rates way below inflation. (HSBC Hong Kong is now offering 1 basis point on standard savings and time deposits, and pre-crisis rates were not much better.) Another obstacle is bureaucracy, and its unintended consequences.

The bureaucracy created by global money-laundering legislation - the difficulty of opening new accounts, with incessant demands for utility bills, notarised documents, new requirements - is phenomenally time-wasting, and is introducing new distortions. (I cannot imagine it has significantly affected criminal activity, and assume that it is driven by large profligate governments to enhance their own tax collection, and that Asian governments with more enlightened attitudes to the taxation of savings are forced to comply.) Apart from the cost in time and money to the individuals concerned (which can be extremely distressing, as the designers appear not to have considered rest-of-world reasons why circumstances may not fit their templates), the tedium of the paperwork must be contributing to the greatly increased turnover of clerical staff in banks (and thereby to the impairment of efficiency in their more necessary tasks, and of common courtesy in responding to individuals who may have large sums summarily frozen). Presumably the sheer volume of mundane documents now shown to notaries has reduced their attentiveness, while greatly enlarging their income - which may likewise affect the calibre of those attracted to the profession.

I know that some investors find all this impossibly time-consuming and are persuaded to set up private bank accounts in order to handle it: they hope that this will enable them to prove their identity once and for all, and to allocate their funds as they wish without further complications. This gives rise to some of the double commissions, and a vulnerability to incentives which cause the banks to favour some funds over others. Once signed up, the investor is handed over by the charming marketing people to operational colleagues, and requests to allocate money to specific funds become bogged down in unfathomable bureaucracy which could reflect either unseen incentives or merely incompetence - caused by the turnover of staff engaged in filling out the forms which the investor wished to escape.

The investor is thus forced back to bank-approved products, which are more likely to be those of large firms focussed mainly on asset-gathering than of smaller firms of more independent mindset. The irony here is that the number of independent funds exploded, not just due to their profitability during a bull market, but as individual managers and investors tried to escape from closet-indexing firms. That diversity is valuable, and it would be good for stability if obstacles to investors who wish to pursue their own investment strategy (and tap specific managers for complementary expertise) were removed.

Sizeism is a problem affecting more than one sector. Regulators often promote consolidation, so that they can deal with a few large entities, presumed to maintain high standards (or in certain countries, to understand the requirements of the authorities). This creates banks too big to fail, and an inefficient shortage of competition - whereas we would be better off with many competing banks, and the ability individually to spread our risks. In other sectors, such as fund management, unnecessary barriers to entry restrict rejuvenation and economic efficiency.

8 Jan 09:
The poetry & doggerel page has been enhanced by The Rent-An-Index Song.

6 Jan 09:
The 4Q report has been posted.

5 Jan 09:
The NAV of the Apollo Asia Fund rose 10.0% in December, and closed the year at US$615.94, still 32% below its May high: charts.


Claire Barnes

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