Singapore fund still haunted by risky credit crisis investments

[SINGAPORE] Residential mortgage-backed securities and collateralised loan obligations didn't turn out to be very good investments during the global financial crisis. For one Singapore-listed mutual fund, they still aren't.

Six years on and Global Investments Ltd continues to pay the price for buying the riskiest parcels of RMBS in Australia and junk-rated loan tranches in Europe. The fund is trading at an about 38 per cent discount to its S$291.8 million in net assets, the steepest since mid 2013, and Chairman Boon Swan Foo admits it's been a "massive struggle."

"It was extremely difficult not only in the management but also in the restructuring side of it," he said in an interview from Global Investments' head office near Orchard Road, Singapore's shopping mecca. "We've had to change the board and of course, we had to do a lot of cleaning up in the legacy assets." Global Investments can trace its origins back to a fund structured and managed by Babcock & Brown Ltd, the Australian global investment and advisory firm that collapsed in 2009 with a balance sheet full of debt. Mr Boon, a senior adviser to Singapore's state-owned investment company Temasek Holdings Pte, took over the company and in September of that year appointed ST Asset Management Ltd, a wholly-owned unit of Temasek, to manage the portfolio.

Global Investments owned A$46.1 million (S$46.5 million) in face value of securities backed by residential and commercial mortgages in Australia, according to its June 30 report. That included some unrated classes of Seiza 2006 Trust notes, which have suffered A$23.3 million in impairment value.

The mutual fund also held 19 million euros (S$30.3 million) in face value of a basket of CLOs packaged and sold by Ireland's Avoca Capital Holdings, an investment company that specialises in leveraged loan management. They carried a cumulative impairment value of 9.44 million euros, the accounts show.

"This pool of assets has deteriorated over time because of delinquencies and ratings downgrade," Jason See, the managing director of ST Asset Management, said in an interview. "There's impairment and the trend is still going on. We continue to evaluate and monitor the situation, whether to divest or hold on for the future cash flows."

The RMBS and CLOs are among so-called hard-to-value Level 3 assets that made up about 23 per cent of Global Investments' portfolio as at the end of June. The mutual fund held 35 per cent of its assets in bonds, 28 per cent in listed equities and 8 per cent in cash and other net assets.

Despite everything, Global Investments hasn't posted a loss since an initial S$33.9 million setback in 2009. It recorded net income of S$24.3 million in 2014 and a S$28.8 million profit the year before that. Dividend payouts have also increased every year since 2010.

The fund booked an S$8.25 million net gain by selling down its holdings of listed equities to S$80.53 million in the second quarter. Between June 30 and July 7, it trimmed its holdings of Shanghai-listed shares to less than S$1 million from S$18.5 million, sidestepping a deeper stock market rout over July and August.

Its debt holdings increased by S$27.05 million in the second quarter to S$103 million. The rated portion of those securities had a weighted average score of Ba3, or three levels below investment grade. The debt holdings had an average annual coupon of about 7.2 per cent. As of December, they included notes issued by Unicredit SpA, Societe Generale SA and Barclays Plc, as well as Li Ka-Shing's Cheung Kong Holdings Ltd, according to its 2014 annual report.

Mr Boon, who owns about 11 per cent of Global Investments, also sits on the boards of China National Offshore Oil Corp and Dongfeng Motor Corp. Because the fund doesn't manage the underlying assets directly, he relies on trustee reports to evaluate his next course of action.

"It depends on the value of the market, and markets change from time to time," he said. "We're holding on in the expectation that if we're lucky, we'll be able to get good buyers at the right price."

BLOOMBERG