Friday, July 2, 2010

Ekuinas: RM5 billion

Ekuiti Nasional Bhd or Ekuinas is a fund set up by the Federal Government in September 2009 using taxpayers' money for the purpose of pursuing the social objective of raising the bumiputra equity and participation in business, according to chief executive officer as reported in the Star on 28 June 2010.

Ekuinas already has an initial capital of RM500 million. Under the 10MP, it will receive RM3.5 billion in three separate funds, RM1 billion in outsourced funds. In all, it will have RM5 billion to invest.

The three funds of RM3.5 billion will invest in mid-sized companies with good growth potential. Typically, these will be companies that are poised for expansion after having developed their markets. Investment sizes of RM30 million minimum.

The RM1 billion funds will be outsourced to investment managers/partners who will invest in doses of not more than RM15 million. These investment partners must put in 20% of their own funds into the investments.

Ekuinas targets an average return of 12% per annum on its investments. To invest for five year, to "simmer" for seven years if need be.


The motivation is faulty in the first place for it uses public money to pursue a narrow agenda. Will Ekuinas pay back the Federal Government plus interest for the money it is using to make investments? Or, if the investment funds then grow to say RM10 billion, Ekuinas will claim the whole RM10 billion to belong to bumiputra ownership? What if Ekuinas lose money; will the general public then be made to pay for the misadventure? Is this what cutting back on the subsidies for the general public going to generate extra funds for such a pursuit?

The whole modus operandi is nothing but plain old venture capital, or what is now called private equity. But this is not private equity, this is public equity. The whole purpose of disintermediation away from banks and into private equity is for the private sector to take more risk in new ventures to explore new products and new markets in order to obtain returns higher than normal.

This is not the first time that Malaysia experiments with venture capital, the last one was Mavcap of which we have not heard much of now.

I am weary of such funds operating. This is in addition to Khazanah and 1MDB. If they can expand the market outreach of the Malaysian economy, then one may be able to give some concessions for such blatant ideas of financial engineering. But if they are going to make foray into foreign corporates, then I see no purpose in such funds. We are giving a sizeable portion of our precious scarce financial resources to a bunch of young people who have just out of educational institutions wearing red ties and dark suits sitting on leather chairs to play legos with.

What happens to our banking system, to our private sector, to our corporate leaders - as our financial leaders have awards heap upon them while the Malaysian private sector lay in ruin. These funds jeopardise the functioning of our funding and investment systems.

Thursday, July 1, 2010

McChrystal: Brilliant?

I am puzzled: How can a general as brilliant as McChrystal get himself into such a trouble? Is McChrystal that brilliant?

By all accounts as reported by the media and by commentators, the problem for McChrystal seems to lie in the foul language used or in comments about current world leaders including the US President and the Vice President.

On reading the actual Rolling Stone article itself "The Runaway General", I get a different picture.

From the article, McChrystal comes across as an alert person who seems to have a disdain for authority (and hence his arrogance) but who is totally at home with the simple and ordinary people. Alert because he seems to be aware of what is going on all the time, and how things are faring at various strategic points. He therefore was not a loose cannon who bad mouth current leaders, as subsequent reports suggest.

McChrystal indeed was very careful with the words he used. The times when he was quoted using expletives was when he was commenting on situations rather than persons. In the case of his having to have dinner with the French Minister, the quote was this: "How'd I get screwed into going to this dinner?" demands Gen. Stanley McChrystal.

What the reporter Micheal Hastings did which was clever but which could have created a gross misunderstanding of McChrystal was that, in order to be able to provide anomymous quotations from the people surrounding McChrystal, he created this literally fiction called "Team McChrystal" and attributed all remarks to it. If read rapidly, it appears that McChrystal was making those remarks. Of course, those remarks who use expletives, as they were typical off-hand remarks in informal occasions.

Underneath all these remarks is the underlying argument over how the US can get out the Afganistan. The simplest solution is just to pull out. But McChrystal has argued for a so-called counterinsurgency (COIN) strategy with the purpose of first stabilising the situation in Afganistan by installing a credible government and a stable society so that a military pullout will not create a civil war.

The problem, according to the article, is that COIN seems to be a very different strategy to execute because (a) it calls for a surge in ground troops in order to maintain order and the US has sent in 30,000 more troops, (b) it calls for military restraint in that US soldiers are told not to fire at most times and this has led to a rise in US troop deaths, and (c) by pouring in financial aids, the strategy is fueling corruption and discrediting the incumbent government in the eyes of the Afgan civilians.

But if Obama has already bought the COIN strategy, then replacing may not change the strategy - unless the new general comes out with a new strategy for a US pullout from Afganistan.

McChrystal could be brilliant. If he realises that the strategy he has sold to Obama does not really now work, then the Rolling Stone article with its consequence (now known) may just be a smart way for him to get out of a very difficult place. This McChrystal has achieved.