TheStar
The Chinese have a saying: “Wealth never survives three generations.” The West has something similar: “From shirtsleeves to shirtsleeves in three generations.” As with most proverbs, there may be more than a grain of truth to these. To kick off this two-part series, CIMB Private Banking and CIMB Trustee Services look at the dynamics behind this popular notion.
THE wealth cycle comprises wealth creation, enhancement, protection and distribution. However, we at CIMB Private Banking believe that many of the family-owned businesses and the rich in the country often neglect the last two aspects.
CIMB Investment Bank director and head of securities and trustee services Yap Huey Hoong, who oversees matters relating to trustee services such as succession and distribution, concurs with this view.
“Even if family business owners and the affluent pay attention to wealth preservation, it is usually only through traditional methods such as fixed deposits, savings accounts, properties, unit trust funds and life insurance. Unfortunately, this does not optimise the growth potential of their wealth,” she says.
Ignoring the protection and distribution of wealth may lead to a realisation of the popular notion that stems from the Chinese proverb, “Wealth never survives three generations.”
The saying reflects our forefathers’ observation that many wealthy families have seen their fortune dissipate as it is handed down over the course of three generations. It starts with the founder of the company who has worked hard and has lived frugally to build his business.
He sends his children – the second generation – to tertiary institutions to ensure that they are better equipped in life than he was. Accustomed to a life surrounded by wealth, the founder's grandchildren – the third generation – tend to fritter away the family fortune.
So, is this saying really just a myth? Is this rags-to-riches-and-back cycle in three generations inevitable or can it be overcome? Can families hold on to their wealth and businesses beyond three generations?
Yap points out that the proverb has been proven true very often as there are many real-life examples from around the world.
She says, “In Asia, the bulk of high net worth individuals are generally what is considered as ‘new wealth’. Many affluent Asian families are only beginning to progress from second to third generation. We have seen high-profile cases, ranging from family disputes to lawsuits, whereby family wealth has dissipated due to family differences.”
She, however, adds that there are also a handful of families who have broken through the third generation 'barrier' through proper estate and succession plans.
“The estate and succession plans are put in place well in advance to ensure that the family wealth and the reins of the family business are handed over to the following generations in an orderly manner,” she explains.
“Many family businesses and wealth do not survive due to two primary reasons – the lack of proper succession planning and the lack of a united family holding structure. As a family grows, this can lead to discord between the needs and interests of the business, and the expectations and requirements of family members.”
Survival of family wealth
Yap advocates the creation of a family holding structure, paired with a succession plan, as the key to the longevity of family wealth and business.
Imagine a founder with five children, who each has a spouse (or in some cases, several divorced spouses) and at least three children. We are thus looking at a family with more than 25 members, each with his own needs and family requirements, and who are all shareholders of the family business.
The different needs of these individuals and families are frequently at odds with the demands of the family business and wealth.
Says Yap, “Unless a proper succession plan is put in place, there will be too many fingers in the pie, with the family wealth being run by five siblings, or worse, a consortium of cousins and uncles.”
This disarray, she adds, may lead to family disputes that cause disharmony and eventually lead to the dissolution of the family business or even the dissipation of the wealth.
When family-run business continues to grow, one is likely to see more founder-children type of partnerships and even cousin consortiums. As the family expands, more people become involved, even if they have not worked directly in the business.
Hence, says Yap, their expectations are different and clashes erupt. The relatives who are silent partners or shareholders may only be concerned with their narrow interests when judging capital expenditure, growth or other major matters.
Those who are engaged in the daily operations will judge matters differently because they have a broader picture to consider. Furthermore, when the owner of the family business grows older, he may become more risk-averse and thus often hinders the growth of the business; this too may cause a rift among family members.
In addition, the second or third generation family members who run the business may not be as united or as driven as the founder. For example, cousins who are shareholders may want to cash out or may not have faith in the new management.
Sometimes, the founder will find himself in a dilemma when his daughter or maybe his niece has better business acumen than his oldest son. Who then should take over the business?
Hence, without any proper succession planning, says Yap, family businesses are unlikely to last past the third generation, as family members’ ownership and individual needs are so fragmented that it will be impossible to find consensus among family members.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Thursday, August 30, 2007
Bank Rakyat said to be bidding for MBSB shares
BusinessTimes
THE Employees Provident Fund (EPF) has received two offers last week for its shares in Malaysia Building Society Bhd (MBSB), a mortgage provider, bankers familiar with the matter said yesterday.
"We are evaluating the offers. A decision on the matter will be made with the best interest of EPF and MBSB at heart," an EPF spokesperson told Business Times.
The spokesperson declined to reveal more details.
RHB Investment Bank Bhd is advising EPF on the sale. EPF holds a controlling 62.41 per cent in MBSB.
Business Times understands that state-owned Bank Kerjasama Rakyat Malaysia Bhd, the country's largest cooperative bank, is one of the parties which made a detailed offer last week, after it received the nod from the Ministry of Finance to proceed with its plans.
The Bank Rakyat plan, split in two stages with different timelines, will first see it buying a 30 per cent stake in MBSB.
Subsequently, Bank Rakyat will inject money for new shares and this will erode EPF's shareholding further.
The bank's offer, which is in the range of RM2 a share, is a steep premium over MBSB's asset backing per share of RM1.29, a source involved in the advisory of the sale said.
This is in line with similar deals in the financial sector where offers are between 1.5 times and two times the book value.
Bank Rakyat has cash and short-term funds of RM1.5 billion as well as 111 branches nationwide. The bank posted a net profit of RM368 milion for the financial year ended December 31 2006.
EPF has taken some flak in recent years over its investment in MBSB, after the company suffered six straight years of losses.
However, over the last three financial years, MBSB has stayed in the black, largely due to the professional management team appointed by EPF.
For its financial year ended December 31 2006, MBSB's revenue was up 28 per cent to RM293.1 million while net profit stood at RM40.2 million.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
THE Employees Provident Fund (EPF) has received two offers last week for its shares in Malaysia Building Society Bhd (MBSB), a mortgage provider, bankers familiar with the matter said yesterday.
"We are evaluating the offers. A decision on the matter will be made with the best interest of EPF and MBSB at heart," an EPF spokesperson told Business Times.
The spokesperson declined to reveal more details.
RHB Investment Bank Bhd is advising EPF on the sale. EPF holds a controlling 62.41 per cent in MBSB.
Business Times understands that state-owned Bank Kerjasama Rakyat Malaysia Bhd, the country's largest cooperative bank, is one of the parties which made a detailed offer last week, after it received the nod from the Ministry of Finance to proceed with its plans.
The Bank Rakyat plan, split in two stages with different timelines, will first see it buying a 30 per cent stake in MBSB.
Subsequently, Bank Rakyat will inject money for new shares and this will erode EPF's shareholding further.
The bank's offer, which is in the range of RM2 a share, is a steep premium over MBSB's asset backing per share of RM1.29, a source involved in the advisory of the sale said.
This is in line with similar deals in the financial sector where offers are between 1.5 times and two times the book value.
Bank Rakyat has cash and short-term funds of RM1.5 billion as well as 111 branches nationwide. The bank posted a net profit of RM368 milion for the financial year ended December 31 2006.
EPF has taken some flak in recent years over its investment in MBSB, after the company suffered six straight years of losses.
However, over the last three financial years, MBSB has stayed in the black, largely due to the professional management team appointed by EPF.
For its financial year ended December 31 2006, MBSB's revenue was up 28 per cent to RM293.1 million while net profit stood at RM40.2 million.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
ASW 2020 investors to get RM344m payout
BusinessTimes
AMANAH Saham Wawasan 2020 (ASW 2020) unitholders will receive an eight sen per unit income distribution for the year ended August 2007.
The eight sen income distribution is higher than the 6.8 sen paid out last year. It included a "special gift" of one sen per unit given out in conjunction with Malaysia's 50th Merdeka celebrations this year.
Fund manager, Permodalan Nasional Bhd, chairman Tan Sri Ahmad Sarji Abdul Hamid said the fund will pay out RM344.1 million as income distribution for the year just ended. The amount is 71.09 per cent higher than the RM201.11 million paid out last year.
"It will benefit 715,526 unitholders who currently hold 5.36 billion units of ASW 2020," Ahmad Sarji said in Kuala Lumpur yesterday.
Up until August 24 2007, ASW 2020 has recorded a gross income of RM530.23 million, an increase of 117.6 per cent from the RM243.65 million recorded in the previous corresponding period.
Profit from the sale of shares contributed RM292.75 million or 55.21 per cent, dividend income from invested companies contributed RM181.02 million or 34.14 per cent, and RM56.46 million or 10.65 per cent is derived from investments in short term instrument.
Ahmad Sarji said the calculations of income distribution this year will be based on lowest average monthly balance for the period of investment from September 1 2006 until August 31 2007.
The income distribution will be reinvested in the form of new units and will be credited to the unitholders' accounts automatically. Unitholders will be able to update their accounts at ASNB head office, ASNB branch offices or ASNB agents beginning next Monday. ASW 2020 is a fixed-priced equity fund open to Malaysians aged six and above.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
AMANAH Saham Wawasan 2020 (ASW 2020) unitholders will receive an eight sen per unit income distribution for the year ended August 2007.
The eight sen income distribution is higher than the 6.8 sen paid out last year. It included a "special gift" of one sen per unit given out in conjunction with Malaysia's 50th Merdeka celebrations this year.
Fund manager, Permodalan Nasional Bhd, chairman Tan Sri Ahmad Sarji Abdul Hamid said the fund will pay out RM344.1 million as income distribution for the year just ended. The amount is 71.09 per cent higher than the RM201.11 million paid out last year.
"It will benefit 715,526 unitholders who currently hold 5.36 billion units of ASW 2020," Ahmad Sarji said in Kuala Lumpur yesterday.
Up until August 24 2007, ASW 2020 has recorded a gross income of RM530.23 million, an increase of 117.6 per cent from the RM243.65 million recorded in the previous corresponding period.
Profit from the sale of shares contributed RM292.75 million or 55.21 per cent, dividend income from invested companies contributed RM181.02 million or 34.14 per cent, and RM56.46 million or 10.65 per cent is derived from investments in short term instrument.
Ahmad Sarji said the calculations of income distribution this year will be based on lowest average monthly balance for the period of investment from September 1 2006 until August 31 2007.
The income distribution will be reinvested in the form of new units and will be credited to the unitholders' accounts automatically. Unitholders will be able to update their accounts at ASNB head office, ASNB branch offices or ASNB agents beginning next Monday. ASW 2020 is a fixed-priced equity fund open to Malaysians aged six and above.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Malaysia’s GDP grows 5.7% in second quarter
TheStar
KUALA LUMPUR: Malaysia's economy expanded by 5.7% in the second quarter this year, higher than the 5.5% rate in the first quarter but less than the 6.1% growth a year earlier.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said the gross domestic product growth in the second quarter was underpinned by domestic demand, which expanded 10.8% compared with 7.2% in the same quarter last year.
Private sector domestic demand was firm as income levels were steady due to stable employment conditions and high commodity prices. This more than offset a decline in the export growth of 3% compared with 5.5% in the second quarter 2006, she told the media yesterday.
The slower export growth was reflected in the expansion of just 1.5% in the manufacturing sector in second quarter 2007 compared with 8.4% a year earlier.
There was, similarly, a decline in output of 0.9% in the agricultural sector compared with an increase of 3.9% in the second quarter last year. This decline was due to weather conditions. It is understood that this refers to the floods encountered in several states during the period.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz, announced Q2 2007 GDP on Wednesday
KUALA LUMPUR: Malaysia's economy expanded by 5.7% in the second quarter this year, higher than the 5.5% rate in the first quarter but less than the 6.1% growth a year earlier.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said the gross domestic product growth in the second quarter was underpinned by domestic demand, which expanded 10.8% compared with 7.2% in the same quarter last year.
Private sector domestic demand was firm as income levels were steady due to stable employment conditions and high commodity prices. This more than offset a decline in the export growth of 3% compared with 5.5% in the second quarter 2006, she told the media yesterday.
The slower export growth was reflected in the expansion of just 1.5% in the manufacturing sector in second quarter 2007 compared with 8.4% a year earlier.
There was, similarly, a decline in output of 0.9% in the agricultural sector compared with an increase of 3.9% in the second quarter last year. This decline was due to weather conditions. It is understood that this refers to the floods encountered in several states during the period.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz, announced Q2 2007 GDP on Wednesday The weakness in the manufacturing and agricultural sectors in the second quarter 2007 was more than offset by an expansion of 9.2% in the services sector compared with 7% in the previous corresponding period. The expansion was led by finance, insurance and business services.
“We used to describe financial services as an enabler of growth. Now, it has become a source of growth, generating income and employment,” Zeti said.
Growth in the manufacturing sector was slow in second quarter, mainly due to “significant weakness” in the electrical and electronics industry, but it remained an important part of the economy. “It formed about a third of the economy,” she said.
There is a significant transformation in the manufacturing sector where higher-valued products would be manufactured, with new sources of growth industries such as petrochemicals and biotechnology.
The inflow of foreign direct investments was strong in the second quarter, amounting to RM13.6bil, compared with RM2.5bil in the same period last year.
Zeti said she expected economic growth in the second half this year would remain firm as tourist arrivals would peak during the period, there would be a higher output of oil and gas from new facilities and implementation of projects under that Ninth Malaysia Plan, which would reinforce the strong domestic demand.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
Wednesday, August 29, 2007
Ten-year cycle of market crashes?
TheStar
By OOI KOK HWA
In this article, we look at three stock market crashes from the recent market crash to those in 1987/8 and 1997/8
Q: Are we in the 10-year stock market cycle, pending a big stock market crash?
The market crash in 2007
The recent heavy sell-down on the bond and stock markets caught a lot of retail and institutional investors by surprise. What appeared to be a haven in investment like the bond market was still subject to panic selling from institutional investors.
We believe the crash in the bond market was mainly due to the withdrawal of some foreign funds. As a result of tight liquidity, unwinding of yen carry trade and potential high losses in some hedge funds, some foreign funds might have been forced to withdraw their investments from the Asia-Pacific market.
The plummet in our stock market was mainly due to the fear of sharp drops in the US, Hong Kong, Singapore, South Korea and Japan markets.
Even though our banking institutions were not really affected by the US subprime issues, the international contagion and fear of more crashes, margin calls and panic selling from retailers caused heavy losses on Bursa Malaysia.
Nevertheless, the magnitude of our losses was far less than those in the regional markets.
The market crash in 1987/8
The market crash in October 1987 was partly attributed to strong market performance of most markets during the first nine months of the year. For example, the US market experienced more than 30% increase during the nine-month period.
However, from Oct 12 to 16, the Dow Index tumbled by 9.5%. On Black Monday of Oct 19, it plunged 22.6%, or 508 points, within a day. It was the largest single fall since 1929, in both absolute and percentage terms.
In Malaysia, the KL Composite Index (KLCI) tumbled by 12.4% on Black Monday. As a result of the overnight crash in US, the KLCI plunged another 15.7% the next trading day.
The market crash in 1997/8
The Asian stock market crash of 1997/98 began with a currency crisis in July in Thailand and quickly spread to neighbouring nations. One by one, overheated markets crashed in Thailand, Indonesia, Malaysia, the Philippines, Hong Kong, Singapore, Taiwan and South Korea. This was mostly due to the rapid industrialisation in these countries.
The US market was affected by the turmoil in Asia. Its share prices began to collapse at the beginning of October 1997. On Oct 27, the Dow Index tumbled by 554 points, or 7.2%, within a day. However, it recovered by recording a rise of 337 points the next day.
In Malaysia, the KLCI tumbled from 1,231 points in the beginning of 1997 to the low of 262 on Sept 1, 1998, representing a total percentage drop of 78.7%.
Comparing the three market crashes, the KLCI suffered its biggest daily drop of 21.5% on Sept 8, 1998. The crashes in 1997/8 and 1987/8 were also far more severe than our recent market crash.
We are not too sure whether we have seen the worst of the crash in 2007. However, the sell-down has caused a big disruption in our uptrend momentum. It appears to be quite difficult for the KLCI to touch the recent peak of 1,392 again.
Any market rebounds may prompt fund managers to continue offloading their equity exposure. Most of big losses in 1997/8 and 1987/8 happened in October.
As we can only know the actual exposure of the subprime issues for most of the US financial institutions when they report their third quarter results in early October, we are expecting some market volatility in that month.
Ooi Kok Hwa is a licensed investment adviser and managing partner of MRR Consulting.
Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
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