Friday, August 01, 2008

Exessive exposure?

In portfolio management, it is important to spread the investments and avoid having large stakes in certain investment. This is called concentration risk.

A stake of more than 5% is considered high. A better level should be not more than 3%.

I am somewhat surprised to read a report in Bloomberg about the following investments:

> GIC invested $18 billion in UBS and Citibank, representing 6% of its portfolio of $300 billion
> Temasek invested $5 billion in Merill Lynch, represented 5% of its portfolio of $100 billion.

Perhaps the total portfolio managed by GIC and Temasek is more than the amounts indicated. If not, the above investments would be considered as excessive.
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4 comments:

siewkhim said...

Kin Lian,

Again most of us miss the point. It is not logic, truth and what is right. It is POWER. I am the most powerful person, I decide what is the appropriate concentration risk.

If head GIC loses, not my money. Poor judgement is not a crime. If tail GIC wins, see I am right.

Whichever way the coin lands, the wealthy and the powerful will alway get away with everything.

So, I am not surprised.

August 01, 2008 2:57 PM
Everlearning said...

It is not just the investments in the United States but the global investments that GIC and Temasek got into that turned out to be bad investments. A competent investor cannot be losing the capital in an investment but a gambler can. It is not the head that rules the heart; it is greed that rules the head.

August 01, 2008 5:58 PM
David said...

$100 billion was first mentioned many years ago and because there is no subsequent updates so many still use this figure to write news or analyse. Anyway the govt never reveals the actual size or portfolio even when specifically asked because they said speculators can attack the Sing dollar but as a layman, I don't quite understand this reason (or is it excuse?). Maybe others can care to comment?
But to ordinary citizens it matters only when GST or other fees are raised again, when HDB flats become very expensive, or new rules to delay CPF withdrawal. These are signs that govt needs to replenish its coffers.

August 01, 2008 8:07 PM
ym said...

conservatively, we should consider ubs, citi, jpm, lehman, lynch, goldman, as 1company becoz they :
- use the same business models,
- use the same risk-mgmt technology,
- employ the same overpaid and overly-theorectical financial-engineers, who studied the same theories from the same textbooks,

i have to say the gahmen made a huge mistake in these companies.. these banks will be mere shadows of themselves after the crisis is over..

August 03, 2008 1:05 AM

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