Tuesday, December 4, 2018

Hedge Fund Dream Job Is Vanishing


There's a Bloomberg article today on the demise of that hedge fund dream job.
Wall Street
Bud Fox: You know what my dream is? It's to one day be on the other end of that phone.
Marv: Oh, you got it, baby, where the real cheesecake is.
The hedge fund industry has became a sunset industry. In particularly, I refer to that of the discretionary human portfolio manager. Once standing at the pinnacle of the financial industry, human portfolio managers has come under threat from quantitative investment strategies, poor returns, passive ETFs, robo-advisors, artificial intelligence, and so on. Once the average fee structure is "2 and 20" (2% management fee, 20% performance fee), now hedge funds are charging less and less. This is a structural long-term challenge and disruption and one I don't foresee being able to turn a tide.

All I can say is, I'm glad I managed to make some hay while the sun shines.

Wednesday, November 14, 2018

Petrol Pump Price - Rockets & Feathers


Crude oil plunged 7% yesterday and has now corrected almost 30% since early October. Since I'm not an economist, I won't delve into the macro specifics of the correction. Instead, I wonder why is it that our petrol retail pump price is still hovering near all-time high?

WTI crude price is now around US$56/barrel, more than 60% off the all-time high of US$145 in July 2008. In contrast, the SPC Premium 95 unleaded gasoline pump price (taken from Bloomberg) was at a record high of S$2.40/litre just last month, even higher than the 2008 pump prices.



Looking at the chart above, the difference between the SPC premium 95 pump price and crude oil (after converting into SGD/litre) seems to be gradually increasing since 2005. Part of the reason is probably because Singapore charges an excise duty on petroleum, and has even recently hiked the excise tax in 2015. A bit of background history on the petrol excise tax - premium petrol excise duty used to be 40% of pump price without GST or $0.50 per litre (whichever is higher) but was lowered to 35% of pump price without GST or $0.44 per litre (whichever is higher) in the 2001 off-budget measures. In the 2003 budget, the petrol excise duty was fixed at a specific rate ($0.44 per litre) so as to reduce final price fluctuation with oil prices. In the 2015 budget, premium petrol excise duty was raised by 20 cents from $0.44 per litre to $0.64 per litre.



Stripping away the excise tax however, the difference between pre-tax pump price and crude oil is still rising since 2005, although the gap has been consolidating since the excise tax hike in February 2015 (vs the first chart where the gap continues to widen).

So is it a case where fuel consumers in Singapore are squeezed by the oligopolistic nature of the petroleum industry? I apply the same calculations to Australia and found out that the trend is pretty much similar.



Turns out, complaining about sticky petrol prices is not exclusive to Singapore. People in USA, UK, India are all questioning why petrol prices don't fall as fast or hard as crude oil prices. So why do petrol prices rise like a rocket, but fall like a feather?

Other than government duties and the cost of crude oil, there is also the refinery margin and the retail distribution's cost. Refiners have a high level of fixed cost to run while retailers' cost may be rising as well due to higher rents, labor costs, etc over the years. As with most other consumer products, inflation rears its ugly head again, and without much transparency and accountability. Perhaps the solution would be to switch from your traditional ICE (internal combustion engine) vehicle, to an EV (electric vehicle) where cost of charging would be fully transparent. It's just too bad that our government doesn't seem to welcome EVs at the moment but hopefully that will all change in 2021 when Dyson rolls off its first batch of EVs from its Singapore plant!

Sunday, November 11, 2018

由穷到富易,从富到贫难


由穷到富易,从富到贫难 - it is easy to progress from poverty to wealth, but extremely difficult to go from being wealthy to poor. Simply put, once you experienced the trappings of wealth, it is painful to lose it. To downgrade your lifestyle multiple notches at once is not just hard, but tremendously challenging and taxing for your mental state.

That is why I always offer this piece of advice to people I met in my industry - be cautious of your lifestyle upgrades. The finance industry, particularly the investment banking side, provides very good income for those working in it. It is tempting to extrapolate your current earning power throughout your career and make current purchases based on that assumption that you will always have a job here. However, over the last few years, there have been so many headcount consolidation and many of my peers had left the industry, most of the time not on their own will. It is easy to live a high-flyer lifestyle in this industry, but hard to sustain it if the job is gone. Switching to another industry will most likely not give you as good a remuneration.

As one progresses in their career life from a poor graduating student to getting their first paycheck, annual pay increments, job promotions etc, it is understandable and natural to upgrade one's lifestyle. The trick is to suppress this desire as far as possible. It is impossible to continue living like a pauper once you start getting richer, but you need not spend too much just because you can. No matter how much you earn, it is always possible to outspend your income. Just look at those celebrities or sports stars managing to bankrupt themselves despite earning millions. According to a 2009 Sports Illustrated article, 78% of NFL players are either bankrupt or are under financial stress within two years of retirement and an estimated 60% of NBA players go bankrupt within five years after leaving their sport. Overspending on a lavish lifestyle is no doubt a major cause.

And it is because of this fear of being forced to downgrade my current lifestyle, not just myself but my family too, I can probably never be able to be an entrepreneur. Because I have too much to lose. I have accumulated enough to retire comfortably based on my current lifestyle needs and the thought of losing a significant chunk of this retirement nest and to return to the work force and accept any job that comes along is my worst nightmare ever. But this is fine by me too, as I do not possess a fierce desire to become a successful entrepreneur anyway. I guess it's appropriate to end off this post with the lyrics from a childhood song, 小人物的心声, the theme song of a local SBC drama, 芝麻绿豆.
小人物的心声
也许我一个人 不能成就一翻大事业
但我尽力贡献一份微薄的力量
也许我自己不能发出万丈光和亮
但我能为斗室带来足够的光芒
我从来就不在乎 自己不是一个大人物
因为平凡也是一种幸福
看到名人总是忙忙碌碌
我的时间由我控制
平凡日子一样会充实

Wednesday, November 7, 2018

Harvard Legacy Preference vs SG Primary School Alumni Priority


There was a recent lawsuit in US filed on behalf of a group of rejected Asian-American students against Harvard University claiming the school's admissions process is biased and discriminates against Asian-Americans. While the lawsuit is kinda controversial, it did bring up an unrelated but interesting discovery when the judge compelled Harvard to share its past 6 years of admissions data, which was, until now, kept highly secretive - it was found that children of alumni were highly favored.

Between 2009 through 2015, 33.6% of legacy applicants (i.e. has at least one parent who graduated from Harvard or its sister school, Radcliffe) were accepted vs only 5.9% success rate for non-legacy applicants. Harvard claimed that legacy preference is necessary to maintain and cultivate a multi-generational relationship between alumni and school but the reality is this practice benefits mainly the affluent white students (only 7.6% of legacy applicants accepted last year were black, Hispanic or native American, compared with 17.8% of all successful applications) and hence is drawing fire from critics all around.

Sources: WSJ, NPR, Financial Samurai,

Closer back home, we have a similar issue for our own primary school admissions process. As every parent would attest to, the primary school registration phase is an extremely stressful exercise as the it is the official starting point of your entire education journey and a good school will give you the best start possible. While in the US, legacy status is just one of the consideration factors for admission, in Singapore, alumni status trumps all other factors except children who already has a sibling studying in that school of choice. And this has turned into such a ridiculous situation that a kid who stays next to a popular school might not get in as the parents are not alumni. Parents wanting only the best for their children will naturally exploit the holes in the system by paying hefty alumni membership fees, signing up for parent volunteering, church/clan affiliation or community work. In 2013, Nanyang Schools Alumni Association charges $1,000, Raffles Girls' Primary School and ACS Old boys charge $500 each. Much has been written and discussed about how this alumni privilege encourages further elitism in our society. Alumni kids whose parents studied in these prestigious schools are more likely than not, already steeped in privilege, probably drowning in their sea of enrichment classes from tuition to violin and golf lessons. In a study in 2016, it was found that children from higher socio-economic backgrounds are more likely to attend Integrated Programme (IP) secondary schools and their affiliated primary schools.

For all the hoo-ha over the CNA documentary hosted by Dr. Janil Puthucheary about the class divide in Singapore, wouldn't one of the easier solutions be to remove this alumni priority in our primary school admissions process and even allow the kids of the lower-income groups to have priority instead? Wouldn't the less privileged kids have much more to gain from studying in the supposedly "elite" schools that churn out the top PSLE students year in year out? Wouldn't this be a better social class equalizer rather than giving out GST rebates or one-off SG bonus to the lower income groups? Why are we allowing our primary schools to enhance the advantages of already privileged children and, at the same time, suppress the economic mobility of the lower class?

Read here, here and here for more.

So what is the government doing about this? Other than introducing in 2014 a puny 20 places reservation for kids with no affiliations, the government is pretty much turning a blind eye to this issue. In fact, the very same host of the regardless-of-class CNA documentary, Dr Janil Puthucheary, said in parliament last year while he was still in Ministry of Education as Senior Minister of State, that priority is given for proximity but balance needed for parents to have the opportunity to send their children to their alma mater. Is this for real? The current P1 admissions framework 100% prioritizes alumni status over proximity! He also claimed that out of all the successful alumni applicants in the past 3 years, less than 15% stay more than 8km away from their schools. Seriously, why the magic number 8km? Why not 7km, 6km or the standard 2km proximity benchmark? 8km is like the distance of Raffles Place to Bedok!

Reforming the current admission framework to eliminate alumni privileges as well as priorities given to parent volunteers, community leaders and church/clan affiliations will go a long way to reduce elitism and social inequality. Allowing less privileged kids of lower-income groups to have priority in choosing their school will give them better odds to move up the social and economic ladder and escape the multi-generational (low) wealth trap. No doubt this will cause a lot of unhappiness among the affected parents and schools who will see a collapse in alumni subscriptions and donations as well as a plunge in the number of volunteers, but in the long run, this will only serve the country well through a more equitable and inclusive society.

Unfortunately, I'm not hopeful at all at seeing any improvements in this aspect from the government. I guess one could speculate, but for reasons unknown, the government seems to prefer to keep the status quo as it is. When I was recruiting analysts previously, I first screen for the applicants with the top university scores. After that, one of my considerations was the address. Whether you're staying in a landed property or condominium vs those staying in HDB flats. People staying in HDB flats, more likely than not, tend to be hungrier and grittier than those staying in private properties. Yes, I do give you a discount if you come from a more privileged background. And I think it will be good to also discount those from elite primary schools. After all, I think the value of a 1st class honors graduate from a neighborhood primary school should weigh higher than another 1st class graduate from a prestigious primary school. If the government won't eliminate privilege, then perhaps it's up to the private sector to do the job for them.

If I come across as sour, that's because I probably am, coming from a shuttered no-name neighborhood school and growing up in a 3-room HDB. My kids won't be able to enjoy any alumni benefits and they would most likely go to the nearby neighborhood school with very limited resources compared to the elite schools with deep pockets, but that's okay because I'm really trying very hard to cut down on their privileged lifestyle and keep them humble and hungry.

And by the way, Oxford and Cambridge don't give legacy preference either.