Thursday, May 24, 2007

Blackstone deal...

See... I have no clue why the Chinese govt is actually taking a stake in Blackstone itself.

Why play up the China Fear Factor? Why not just invest into the funds they set up.

Returns is not something the top priority for the Chinese govt. They should invest into a fund run by Blackstone, and then let them be the front to acquire various business. So that when CNOOC's $18.5b is worth "less" than Chevron's $17.1b (US dollar in the hands of Chinaman has less value apparantly), they can ask Blackstone to buy for them.

Sort of like a rich man putting money into an arm's length trust, so that the trust executes "independently" the wish of the rich man.

Jut because you have money in the Magellan fund doesn't mean you need to buy Fidelity's shares...

Or am I missing something here...


  1. I think there are probably at least three reasons for this investment:
    1. Blackstone is a profitable and influential player in the financial industry.
    2. In private equity investments, the GPs (general partners) and LPs (limited partners) have vastly different rights and returns. Being a substantial investor in the GP might help China secure better terms in its participation as an LP or even as GP.
    3. Through this investment, China can learn from the best in the business in preparation for starting up its own national investment company, a la Temasek.

  2. I think you already know, but let me point it out: The Chinese government need some one they can "depend" on.

    By investing directly into Blackstone, which Mr. Antony Leung the Lexus Guy heads the China operation, it gives them more "assurance".

    Still in the era of guanxi man...

  3. Thats the thing...

    In the guanxi driven world of private equity, how much can the Chinese govt learn about how to invest like Blackstone.

    And this whole Temasek thing... Their return is screwed because once Temasek goes beyond the realm of investing in rent seeking companies they get hit.

    Rent seeking could only be sustained with the proection of governments. Temasek cannot protect such rent seking activities beyond the shores of Singapore.

    And Surely, with the power projections limitation enjoyed by the chinese government now, how are they going to protect their assets?

    Also, it will be depressing to see such "Chinese Temasek" be in competition with other SOEs in trying to buy foreign assets such as oil fields or copper mines.


  4. 1. Whether the Chinese government needs to set up a Temasek-style investment company is up for debate. I am personally not entirely convinced either way. Two facts are: the Chinese government is sitting on a huge pile of reserves and that Temasek is a formidable financier in the region.

    2. You are underestimating the complexity of setting up an investment company. For example, how can the government incentivize people to make market-driven decisions? How can it hire people from the private sector? How does it monitor investments made? These are things that come quite naturally to the regular private equity firm, but it is a brave new world for a government. The only government that has done so successfully is Singapore (Actis of the UK was spun off; Khazanah of Malaysia is mysterious; So besides learning how to make investment decisions from Blackstone, the Chinese gov't would also be studying its infrastructure and systems.

    3. Temasek's return is NOT necessarily screwed outside of Singapore. It has probably made enormous money in its bank investments. Also Temasek tend to partner with Singapore companies (or more likely its own Singaporean investees) in making foreign acquisitions, not in competition.

    But then, I have no inside information, so these are just my wild guesses. :)

  5. I doubt I UNDERESTIMATED how hard it is to set up an investment company.

    It is because I think it is damn hard (especially concerning the reduction in conflict of interest and corruption) that it is insane to do so.

    They should just use the money and stock pile real assets such as copper, oil and gold.

    As for the return on Temasek's return... Well, lets just say that if it is real good... They would have announced the numbers.

  6. Also, you might have concern about how "there is not enough real assets to soak up the 1 trillion US dollar..."

    Well, thats the whole point. Money is printed with gay abandon, the reserve in the PBOC is the symptom.

  7. "Money is printed with gay abandon"
    Dude you sounds like "fun ching" /"angry young man" from China

  8. Would this and this count as disclosure of their returns?

    I was thinking about the merits of establishing this kind of national investment company. i) I think it makes sense to set up a professionally run (if possible in a government) asset manager to manage its foreign reserves, the great majority of which would probably still be invested in dollar bonds; ii) What if, and I admit this is a wild guess since I have not read anything pointing this way, the Chinese government wants to reform its state-owned assets - sell them down and transfer the rest from the bona fide bureacracy (SASAC) to this "professional" asset manager?

    This asset manager thing is a direct echo to the current sentiment prevalent in China that whatever development mode it adopts, it has to be tweaked to suit China's predicament (中國國情, more precisely) (a view expressed in the popular TV series 大國崛起). Whether we agree with it or not, this view is extremely pervasive and persistent.

    Additional reading: An analysis of Temasek and the GLCs (albeit dated).

  9. If the asset is controlled by government... it is controlled by government

    Whether it is a govt dept


    like MTR govt controlled


    like HKEx, where govt appoints board members.

    And I truly that unless an entity is profit driven, ultimately it will harm the very goals it tries to achieve.

    Anyhow, I say screw such "investment companies", we need hard assets.


    We need the military might to secure/protect the hard assets. And I ain't talking about a skanky aircraft carrier. I am talking about the full fleged, global projection of military power in a moments notice.

    Thats what makes the USD trusted. Thats is what will make the RMB trusted.

    The entire 大國崛起 TV series is not a battle between different modes of development.

    It is about developing a Pax. Hopefully global in nature.
    Hopefully with China (Pax Sinica btw, I've checked)
    But only able under pinned by a military force that could fight wars in a distinct land, in a moment's notice.

    Hard ASSETS!

  10. One more thing.

    On the reports by Tamesek.

    Yup... model of corporate governance and transparency.


  11. a few thoughts

    1) the blackstone deal is pure arbitrage, of a discount pre-IPO. plus a bet that the share price will sustain beyond lock-up period -
    think of it as any IPO deal, not a PE. Chinese govt is betting it will outperform DJIA (or at least on par with)

    2) a "Temasek" will see the same political problem that CNOOC saw. but there can still be a regional temasek avoiding "non-free" countries such as the US

    3) "temasek" is fundamentally different from PE. PEs leverage heavily. Temasek (esp the Chinese fund) does not need to

    4) If China invest into one of the BS funds, in theory it cannot ask it to buy Unocal -- the fund is supposed to act independently and the Unocal deal is not necessarily a good one, esp at that price.