Financial opportunities allow guardian of the Tracker Fund to thrive
As executive vice-president of State Street Bank and Trust in Hong Kong, Tse Kam-keung knows about investments. State Street, which handles financial assets worldwide, is well known in the city. It is the trustee for the Tracker Fund, the HK$32.2 billion index fund the government created in 1999 to dispose of the stock portfolio it purchased during the Asian financial crisis.
Mr Tse, 48, joined State Street in 1993 and became executive vice-president in 2002. He was also among the 180,000 Hong Kong investors who bought into the index fund, which tracks the performance of the Hang Seng Index. But he did not keep it for long because of the complex disclosure reporting requirements demanded by the trustee.
His interest in investing began with property when he was the assistant secretary for the Lands Department in 1985. He made good money from it. Yet the father of three sons - Chun Hin, 13, Shing Hin, 11, and Sheung Hin, three - spends and invests carefully. And, as experienced as he is, he has had his bad days - such as when a fund house he invested in went bankrupt and he lost his savings.
State Street is well known as the custodian of the Tracker Fund. How has the fund performed since its launch?
Since the fund was launched in 1999, it has performed well. As an index fund, it goes up and down with the Hang Seng Index. It is listed on the stock exchange so there is a lot of liquidity and active trading in the fund. (The tracker fund is trading at about HK$23 a share, almost double its IPO price of HK$12.88.)
What other funds does State Street have in Hong Kong and on the mainland?
Globally, State Street has big mutual fund operations. But in the Asia- Pacific region, we handle mainly the government funds, sovereign wealth funds, pension and insurance company funds. We manage US$1 trillion in the region. We provide custodial, forex, transaction management and securities lending services.
I cannot name many of our government clients but we would definitely like to work with China Investment Corp and Korea Investment Corp, the two major sovereign wealth funds in Asia. We will also monitor the development of a similar fund to be set up in Japan.
How do current market conditions affect State Street's business in Hong Kong and on the mainland?
The Hang Seng Index is a good reflection of how markets have been moving up and down. Roughly speaking, when the market goes down 10 per cent, our income goes down about 1 to 2 per cent.
The market performance also affects our clients' investment interests. Some of them may like to hold more cash or invest more in the bond markets.
There is a saying that 'when there is blood in the street, it is the time to buy'. But clients usually don't like investing aggressively in a volatile market. Facing market uncertainty is the major challenge for State Street.
What is the difference between serving governments and retail investors?
When you work with the government, it's like having a big single client whose requirements are often different to those of retail investors. For retail investors, there are a lot more rules and regulations to follow. Regulators are concerned about whether funds are being run properly.
You were a government officer, an analyst and head of a PR agency. Why did you change jobs so frequently?
When I took my undergraduate degree, I studied at three universities in four locations and majored in seven subjects. I wasn't sure about what I wanted to do, and I also wanted to try different things. When I was young, there was no opportunity cost to switching companies or industries. State Street became my dream job because it had a lot of opportunities and exposure. I've been here for 15 years now.
What was your first investment and how did it fare?
I purchased my first apartment in Sha Tin in 1986. I was lucky because the property market was so high in the late 1980s and 1990s that my investment went up significantly.
Did you listen to your firm's analysts or get investment tips from newspapers or a fortune teller?
I definitely did not listen to a fortune teller. I was an analyst at Barings Bank before it collapsed in the 1990s, so I did the investment analysis myself. The key issue is to diversify your portfolio. Also, because I don't have time to watch stock or bond market movements, I buy mainly fund products and let the other fund managers do the job for me.
What's in your portfolio?
I invest in highly liquid assets and invest for the longer term. Roughly, I have a 40 per cent interest in my company. It is a great stock and gives me a good and stable return. I also put about 20 per cent into property, another 20 per cent into deposits and the remaining 20 per cent into other investment products.
Do you have any exotic investments such as a horse, wine or diamonds?
I like the Chinese saying: 'Don't buy a cow across the mountain.' I don't put my money into anything I don't really know.
What has been your best investment decision to date?
When it comes to investing in property, I am good at getting the timing right. I have invested in several properties and enjoyed capital gains when the market was up in the 1980s and 1990s. After that, I did not invest in property for 10 years while the market was down. I am lucky. I received rental income from the properties I had, but the major returns came from capital gains. In the 1980s and 1990s, some properties could easily have made returns of 100 per cent or more. In the past, I invested mainly in small- and medium-sized apartments and do not invest in luxury properties.
Why have you not bought property as investments in the past 10 years? Was it because you lost a lot in the 1997 financial crisis?
I lost some money but not much. I didn't invest in property when the market was down. I have bought a few apartments for family use in the past few years, but they were not for investment purposes.
What was your worst investment decision and how did you get out of it?
I purchased some Indian and Chinese funds in 1993 and held them for 10 years, but they were still down 20 per cent when I sold them. They did not perform up to the standards I wanted but this was not my worst experience.
My worst investment was investing in a friend's Japanese funds when he worked at a boutique fund house. When the Japanese market went up and the Nikkei stood at 42,000 points, the Japanese fund worked well and I put all my savings into it. I remember very clearly that when I returned from my honeymoon, I found the fund house had collapsed and the fund had gone bankrupt. I lost all my savings.
What lesson did you learn from it?
You have to know your fund manager and how they work. I didn't know my friend was cooking the books. When the Nikkei was down, he changed to investing in forex trading with margin financing, which is very risky.
He booked any loss transactions in his own account and booked the profitable ones in the client accounts. It sounds good, but a personal account cannot hold a loss that is too high. When the loss got too high, the firm collapsed and the investors were left with nothing.
Have you ever bought stocks or applied for any IPOs?
My main stock purchases have been buying into my company. I did invest in a Chinese insurance company at HK$22 per share last year. It was up to HK$32 four weeks later and rose to HK$50 at the end of last year. I made some money from that investment, but I think stocks are pretty risky. I think I will only use about 5 per cent of my portfolio for speculative investments.
How do you describe your personal finance style? Are you a saver, spender, speculator or long-term investor?
I am a long-term investor and a saver. I am definitely not a big spender due to my experience growing up. I am saving for family's future.
What is influencing the market at the moment?
The subprime or credit-crunch issue still haunts stock markets worldwide. I think it is better to pick safe investments rather than being too aggressive.
Do you think you are rich or poor?
I am rich in that I do not need to worry about money. I am a 'cheap person' in that I live on a small budget. But I am poor in that there are so many issues in the world that I cannot do anything about. In a sense, I am poor because I can do so little to influence the world.