Monetary Authority of Singapore Tries To Sue Pheim

Morningstar ranked Pheim ASEAN Emerging Companies Growth Fund ranked No. 1 for the 1-year, 3-year, 7-year, 10-year and 14-year periods for the Morningstar Category ASEAN Equity Funds as at June 2009.

First, let me say that I like CK Tan a lot, I think he is quite a brilliant fund manager. Besides being an outstanding long term outperformer, I also absolute share his view on the local market, this was uttered by Tan some 13 years ago: Pheim Asset Management CEO Tan Chong Koay believes that a buy-and-hold strategy is not appropriate for Malaysia's volatile market. Tan states that investors need to bet on the sharp swings of the market if they are to succeed in Malaysia.

It is being closely watched in the investment community, as Tan is well-known in fund management circles. Also, the case touches on the practice of “window-dressing” where big investors may try to ramp up or push down share prices — a key concern at the year-end when the value of a fund is determined.

Pheim Malaysia's case is it had already invested in the company when it was floated on the stock exchange earlier in the year. Its investment committee was keen to buy more United Envirotech shares, on the back of its success in investing in Hyflux. There were three funds in question — but under Malaysian rules, each fund could not hold more than 10 per cent of foreign (non-Malaysian) stocks. So it was only after these three funds had sold off some Singapore stocks on Dec 28, that the firm was able to buy into United Envirotech. Pheim Malaysia argues that it was a genuine investor, believing the shares were undervalued in 2004.

My views in brackets.

UET shares are the subject of a High Court lawsuit. The Monetary Authority of Singapore is suing Tan Chong Koay and his Malaysian fund Pheim Asset Management for alleged false trading in UET shares in December 2004.

Justice Lai Siu Chiu heard evidence yesterday from former UOB Kay Hian broker Tang Boon Siah, who said he received 'discretion' orders from Pheim Malaysia to buy about $100,000 of UET shares on Dec 29, 30 and 31, 2004 and filled these orders slowly, and mostly at the end of each trading day, because the stock was illiquid.

Examined by Pheim's lawyer Foo Maw Shen of Rodyk & Davidson, Mr Tang said he mostly lifted offers from the sell queue and waited as long as he could between trades so prospective sellers might appear. Even then he was unable to completely fill the order, but the price changes on each trading day did not exceed 20 per cent, he said. (Filling an illiquid order is a very difficult task, the broker did the right stuff, waited till end of the day before taking out the sellers queue, and he also ensured that it did not exceed 20% price movement daily. (Nothing sinister here).

Mr Tang said he kept in frequent telephone contact with Mr Tan on Dec 30 and 31, 2004 to update the latter on the status of the market. Mr Tan is represented in the case by Senior Counsel Michael Hwang. MAS, represented by Senior Counsel Cavinder Bull of Drew & Napier, alleges Mr Tan and Pheim created a false market in UET shares by their purchases, especially when timed so close to the end of the year. The purchases were also made mostly at the end of each trading day. (Mr. Bull is obviously deluded as to why shares had to be done mainly at the end of the day, this is to prevent other speculative buyers jumping in thus driving the shares up even more. By definition, a false market is WHEN YOU LITERALLY CONTROLS THE BUYERS SIDE AND THE SELLERS SIDE - if Phiem really did try to create a false market, then by all means the genuine sellers would dump their shares when the share price moved up day by day, Pheim was not selling).

The purchases caused the share price to close significantly higher and created a false and misleading appearance in the market, Mr Bull argued. This contravened Section 197(1)(b) of the Securities and Futures Act, he said. (OMG, MAS and Mr. Bull, why bother with this frivolous and naive lawsuit even. It was not a one day affair, it was spread out over 3 days. Did it amount to trying to close the share price at a certain level, or was it due to a genuine attempt to buy more shares).

Mr Tan and Pheim deny the accusations, saying the purchases were legitimate commercial transactions. Former HSBC Securities managing director Christopher Chong is expected to take the stand as an MAS expert witness on Monday when the hearing resumes. The defendants have called Nels Radley Friets - chairman of the Singapore Exchange and Catalist disciplinary committees, but appearing in his private capacity as their expert witness.

Aug. 28 (Bloomberg) -- Singapore’s central bank sued Pheim Asset Management Pte Chief Executive Officer Tan Chong Koay and the fund manager’s Malaysian unit for manipulating the shares of a water treatment company.

Tan and Pheim Asset Management Sdn. bought almost 90 percent of the traded shares of Singapore-based UET from Dec. 29 to Dec. 31, 2004, according to a statement presented to Singapore’s High Court by the Monetary Authority of Singapore's lawyers Drew & Napier LLC yesterday.

That created a “false or misleading appearance” of the market and the company’s stock, Cavinder Bull, a lawyer with Drew & Napier, said in the statement. The share purchase raised the net asset value of Pheim’s accounts, triggering outperformance bonuses of S$50,790 ($35,218) and an additional management fee of S$115, lifting the reputation of the fund manager, Bull said in the statement. (This is so laughable. A performance bonus of nearly S$61,000. Can someone please clarify what is Tan's net worth in 2004? I mean, the "reasonable man" defense here would tear this to shreds).

Pheim and Tan wouldn’t have been motivated by the “insignificant” amounts, according to a court statement from their lawyers. They “had no intention to create a false or misleading appearance,” according to the statement. United Envirotech shares were undervalued and the purchases were “part of a legitimate and genuine investment strategy,” it said.

UET price movements during that period were “a reflection of genuine demand and supply,” and the stock was “illiquid” and “volatile,” according to the statement. Pheim bought the shares for 38.4 Singapore cents to 43.9 Singapore cents each in December 2004. The shares climbed 17 percent from Dec. 29 to Dec. 31 that year.

“This was not the conduct of a genuine buyer seeking to buy shares at the lowest possible price,” the central bank said in its court filing. “Such a genuine buyer would have spread out the purchases of a thinly traded stock in order to avoid spikes in the prices.” (Not necessarily as the record should show that even as prices went higher with each progressive day, there were no excited sellers of the shares or else Pheim would have had the opportunity to buy a lot more shares. It was obvious that the shares were tightly held. MAS might as well GO AND SUE THE SHAREHOLDERS OF UTC WHO DID NOT SELL THEIR SHARES when Pheim started to buy the shares aggressively, does the fact that they did not sell to an irrational share price rise amount to stupidity or an act to collude with Pheim to allow the share prices to go even higher??).

Tan will call Nels Friets, chairman of the disciplinary committee of Catalist, the small-caps board of the SGX, as an expert witness in his defense. The central bank has called Christopher Chong, former managing director of HSBC Securities Pte, as its expert witness. Tan couldn’t immediately be reached for comment. The central bank declined to comment on on-going legal proceedings. Tan and Pheim may be fined between S$50,000 and S$2 million if found guilty, according to the court filing.

Pheim, founded by Tan in 1994, manages more than US$1 billion and counts the GIC and Malaysia’s Employee Provident Fund among its clients, according to its Web site. Tan, who has offices in Singapore and Malaysia, once jokingly said that Pheim was a made-up word which means Please Help Everyone Invest Money.

The case is Monetary Authority of Singapore and Tan Chong Koay, Pheim Asset Management Sdn Bhd., 658/2008/P in the Singapore High Court.

MAS should have a lot more things on their plate than to go for somebody like Pheim. Such a waste of resources and time.

p/s photos: Eri Otoguro

BlackRock Is Now The Biggest Asset Manager

Investors pulled a net $320bl from mutual funds in 2008, a record in both dollar terms and as a percentage of assets, in one of the biggest flights to safety the industry has seen. The move out of what were previously regarded as safe and stable investments followed a record year of investor inflows in 2007.

• Jun 12: Blackrock, started 21 years ago in a one-room office, agreed to buy Barclay's investment unit for $13.5bl to become the world’s largest money manager. BlackRock will pay $6.6bl in cash and the rest in stock for Barclays Global Investors. Barclays will hold a 19.9% stake in the combined company. The purchase, the biggest of a fund manager, creates a company overseeing $2.7tl in assets, more than the Federal Reserve. BlackRock will add about $1tl in investments that track market indexes, which are attracting clients at the expense of funds whose managers choose securities to buy and sell. It’s the first top-ranked firm to attempt to combine both types of businesses.
• Jun 08: BlackRock is a step closer to becoming the world’s biggest money manager after emerging as the leading bidder for Barclays’s fund unit. BlackRock has moved ahead of contenders for Barclays Global Investors including BofNYMellon. Barclays, the U.K.’s third-largest bank, is seeking more than $12bl for BGI, and may keep a 20% stake in the combined company.
• Mar 27: BlackRock, the biggest publicly traded U.S. asset manager, will participate in the U.S. Treasury’s programs to purchase troubled securities from banks. BlackRock will take part in programs outlined today by the Treasury that will purchase loans and set up funds to buy mortgage-backed securities. Bill Gross, co-chief investment officer for Pimco, said his firm also would participate in the bailout programs.
• Jan 20: SSgA reported a 27% plunge in assets under management for 2008, to $1.44tl as of Dec 31 2008, from $1.98tl a year earlier, and down 14% from $1.67tl in Q3.
• Jan 13: Fidelity Investments, Franklin Resources and Legg Mason suffered the biggest U.S. mutual-fund withdrawals in 2008, cutting their base of fee- generating assets. Investors pulled $40bl from stock and bond funds at Fidelity, the biggest outflow from a single company. Investors took $21.5bl from Franklin and $21bl from Legg Mason.
• Dec 30: Legg Mason's once-celebrated Value Trust fund is set for its worst-ever annual returns in 2008, and some investors grumble that time is running out for its manager, Bill Miller. The flagship stock mutual fund lost 57% in the year to December 29, the worst in its class and under performing the S&P 500 for the third straight year following the S&P 500's 39.4% loss.The losses are so big, the fund now trails the benchmark S&P 500 over not just one year but over three, five and 10 years. It is barely ahead over 15 years. Hemorrhaging assets, its size has shriveled to about $4.3bl at the end of November from more than $20bl in mid-2007. Miller's luster is fading. The 58-year-old made his and Legg Mason's name as the only manager to beat the S&P 500 15 years in a row until 2006 with bold portfolio picks that once characterized the Value Trust.
• Nov 11: As the financial crisis hammers fund returns, many managers are touting their stable long-term records to convince investors that their money is safe. However, that argument may soon vanish. The 10-year returns of many funds have held up in the face of recent losses in part because of huge stock market gains in the 4Q of 1998. As this year ends, those returns will reflect a new decade of 1999 to 2009, a period that could look miserable for some big funds like Bill Miller's Value Trust.
• Nov 4: In Europe, BlackRock is promoting fiduciary management — the outsourcing of the management of a portion or an entire pension fund – beyond its Dutch stronghold. In the last two weeks of Oct. 2008, BlackRock had been in discussions with four different U.K. pension funds to provide fiduciary management services.
• Oct 21: BlackRock's 3Q earnings fell 15% as investors withdrew from its money-market funds. The biggest publicly traded U.S. asset manager had withdrawals of $41.6 billion from its money-market funds in the quarter, mostly after the Reserve fund faltered. The withdrawals, which represented about 12% of BlackRock's cash-management assets as of June 30, and falling stock and bond markets pushed the company's net income down for the first time in two years.
• Oct 15: Pimco, the world's largest bond fund, was selected to manage the CP assets for the Fed as part of the government's Commercial Paper Funding Facility program. State Street will serve as custodian and administrator of the program.
  

p/s photos: Kou Shibasaki