TOWN COUNCILS, SINKING FUNDS, LEHMAN BROTHERS & $12M
'You can blame them only with hindsight'
Financial expert, MPs say pointing finger at town councils not appropriate
By Lediati Tan
November 19, 2008
ONE word kept popping up after it was revealed in Parliament yesterday that two town councils had also invested in Lehman Brothers-linked structured products: Hindsight.
With hindsight, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals, the town councils should not have invested in the structured products.
But, he told The New Paper: 'You can't blame the town councils. If you look at the last seven years, every year the most sold product in terms of volume in Singapore was structured products. They were seen as capital guaranteed.'
'With hindsight,' said Madam Ho Geok Choo, West Coast GRC, 'whether the decision is correct or not, I think at that point, no one was any wiser to know that months later things were going to take a turn in this manner.'
They were reacting to news that two town councils - Holland-Bukit Panjang and Pasir Ris-Punggol - had sunk about $12 million into the structured products, including Lehman Minibonds and Merrill Lynch Jubilee Series 3.
The figures were revealed by the Senior Minister of State (National Development and Education) Grace Fu in response to a question from Nominated MP Eunice Olsen.
Six other PAP-run town councils also have exposure to Lehman Brothers through their fund managers' investment portfolio.
These investments came to about $4 million and accounted for less than 1 per cent of each town council's funds available for investments, reported Channel NewsAsia.
The New Paper asked several MPs about what they thought of town councils investing surplus funds into structured products.
All of the MPs we spoke to did not think that it was appropriate to point the finger at the town councils and blame them for investing in such products. No one was aware of the risk at the point of investment.
'It's not just town councils, but individuals and corporations who have been hurt by this economic crisis,' reasoned Madam Ho.
And it's not whether town councils should have invested in such products, but how much, Madam Ho said.
Holland-Bukit Panjang and Pasir Ris-Punggol invested respectively 6.7 per cent and 2.6 per cent of their total funds for investment in the structured products.
This is well within the cap of 35 per cent of the sinking fund that each town councils can use to invest in non-government stocks, funds or securities.
She also emphasised the need 'to be a smart investor and diversify by not putting everything in one basket'.
Mr Zaqy Mohamad, MP of Hong Kah GRC, agreed.
'For town councils, it's a bit difficult when it comes to the management of funds. There has to be balance of expectations in poor times and in good times.
'We just have to be prudent in how we manage funds. The question to put to town councils is about total returns.'
He emphasised the need to look at total returns to see whether the loss has been offset by other investments.
He also told The New Paper: 'We have to be realistic. It's easier to say things with hindsight, but it's not so straightforward.'
Nominated MP Mr Siew Kum Hong said: 'It's easy to second-guess town councils' decision, but I think a better question to ask is whether other institutional investors have bought into these products.
'I would hesitate to second-guess the town councils' decisions.'
But Mr Siew reasoned: 'Of 14 town councils, only two have invested in Lehman-linked structured products - that is not to say that the other town councils did not invest in structured products.
'Now that the issue has come out - and $12 million being pretty substantial - the onus is on town councils to come out and be completely transparent.'
When the news broke late last month that some town councils had purchased Lehman Brothers-linked products, Dr Teo Ho Pin, MP for Holland-Bukit Panjang, told Channel NewsAsia: 'There's definitely no fear that any of the PAP town councils' sinking funds will be wiped out.
'All the supporting PAP town councils' sinking funds are in safe hands.'
He is also the coordinating chairman of the 14PAP town councils.
Low-risk better?
Should town councils, then, have stuck to investing in low-risk products such as fixed deposits and bonds?
For instance, opposition town council Potong Pasir invested $3m out of its $6m worth of sinking funds on Government bonds like LTA bonds, while the other half is in fixed deposit.
Said Mr Leong: 'Clearly the problem here was that (the two PAP town councils) were trying to lower their risk by investing because these were seen as low risk products.'
Focus less on risk reduction, he said, and more on risk diversification.
'When more and more people think that a product is low risk, the bubble situation may arise where a low risk product might explode in your face and become a high risk product.'
He added that in the last seven years, questions have been raised in the media about structured products.
Town councils should disclose what investments products they are holding, he added, so that they can be alerted should there be problems with what they bought.
'You can blame them only with hindsight'
Financial expert, MPs say pointing finger at town councils not appropriate
By Lediati Tan
November 19, 2008
ONE word kept popping up after it was revealed in Parliament yesterday that two town councils had also invested in Lehman Brothers-linked structured products: Hindsight.
With hindsight, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals, the town councils should not have invested in the structured products.
But, he told The New Paper: 'You can't blame the town councils. If you look at the last seven years, every year the most sold product in terms of volume in Singapore was structured products. They were seen as capital guaranteed.'
'With hindsight,' said Madam Ho Geok Choo, West Coast GRC, 'whether the decision is correct or not, I think at that point, no one was any wiser to know that months later things were going to take a turn in this manner.'
They were reacting to news that two town councils - Holland-Bukit Panjang and Pasir Ris-Punggol - had sunk about $12 million into the structured products, including Lehman Minibonds and Merrill Lynch Jubilee Series 3.
The figures were revealed by the Senior Minister of State (National Development and Education) Grace Fu in response to a question from Nominated MP Eunice Olsen.
Six other PAP-run town councils also have exposure to Lehman Brothers through their fund managers' investment portfolio.
These investments came to about $4 million and accounted for less than 1 per cent of each town council's funds available for investments, reported Channel NewsAsia.
The New Paper asked several MPs about what they thought of town councils investing surplus funds into structured products.
All of the MPs we spoke to did not think that it was appropriate to point the finger at the town councils and blame them for investing in such products. No one was aware of the risk at the point of investment.
'It's not just town councils, but individuals and corporations who have been hurt by this economic crisis,' reasoned Madam Ho.
And it's not whether town councils should have invested in such products, but how much, Madam Ho said.
Holland-Bukit Panjang and Pasir Ris-Punggol invested respectively 6.7 per cent and 2.6 per cent of their total funds for investment in the structured products.
This is well within the cap of 35 per cent of the sinking fund that each town councils can use to invest in non-government stocks, funds or securities.
She also emphasised the need 'to be a smart investor and diversify by not putting everything in one basket'.
Mr Zaqy Mohamad, MP of Hong Kah GRC, agreed.
'For town councils, it's a bit difficult when it comes to the management of funds. There has to be balance of expectations in poor times and in good times.
'We just have to be prudent in how we manage funds. The question to put to town councils is about total returns.'
He emphasised the need to look at total returns to see whether the loss has been offset by other investments.
He also told The New Paper: 'We have to be realistic. It's easier to say things with hindsight, but it's not so straightforward.'
Nominated MP Mr Siew Kum Hong said: 'It's easy to second-guess town councils' decision, but I think a better question to ask is whether other institutional investors have bought into these products.
'I would hesitate to second-guess the town councils' decisions.'
But Mr Siew reasoned: 'Of 14 town councils, only two have invested in Lehman-linked structured products - that is not to say that the other town councils did not invest in structured products.
'Now that the issue has come out - and $12 million being pretty substantial - the onus is on town councils to come out and be completely transparent.'
When the news broke late last month that some town councils had purchased Lehman Brothers-linked products, Dr Teo Ho Pin, MP for Holland-Bukit Panjang, told Channel NewsAsia: 'There's definitely no fear that any of the PAP town councils' sinking funds will be wiped out.
'All the supporting PAP town councils' sinking funds are in safe hands.'
He is also the coordinating chairman of the 14PAP town councils.
Low-risk better?
Should town councils, then, have stuck to investing in low-risk products such as fixed deposits and bonds?
For instance, opposition town council Potong Pasir invested $3m out of its $6m worth of sinking funds on Government bonds like LTA bonds, while the other half is in fixed deposit.
Said Mr Leong: 'Clearly the problem here was that (the two PAP town councils) were trying to lower their risk by investing because these were seen as low risk products.'
Focus less on risk reduction, he said, and more on risk diversification.
'When more and more people think that a product is low risk, the bubble situation may arise where a low risk product might explode in your face and become a high risk product.'
He added that in the last seven years, questions have been raised in the media about structured products.
Town councils should disclose what investments products they are holding, he added, so that they can be alerted should there be problems with what they bought.
