联成

WHEN shareholders in Perth-based energy utility Alinta Ltd gather to vote on the $15 billion carve-up of the company on August 13, few of them will realise the remarkable historical event they will trigger. In accepting $4.5 billion of cash from Singapore Power for a suite of Australian electricity and gas distribution assets, Alinta shareholders will lift the total value of Australian business assets controlled by the Singapore Government to almost $30 billion. This will exceed the value of commercial assets owned by our own Federal Government, which is surely an unprecedented situation for any First World country. How can a foreign power own more of Australia than our own government?

While ordinary Singaporeans have limited democratic rights and still don't enjoy benefits such as Australia's minimum wage (the world's highest), the Singapore state has amassed an empire worth more than $200 billion — and it has now put more of it into Australia than any other country. The investments come from two discreet vehicles. The $100 billion-plus Government Investment Corporation (GIC) invests Singapore's foreign reserves around the world while Temasek Holdings owns the shares in government-controlled businesses such as Singapore Airlines, Singapore Power, Singtel and the giant DBS Holdings financial conglomerate.

Few people realise how much these two vehicles have ploughed into Australia since 1995, buying many sensitive and prestigious assets such as Optus, Myer Melbourne and large parts of the old State Electricity Commission of Victoria. This compares starkly with the Howard Government, which has raised about $65 billion from privatisation — the biggest chunks coming from selling 83 per cent of Telstra ($45 billion), 50.1 per cent of the Commonwealth Bank ($5.15 billion) and the nation's airports ($8.5 billion).

With Medibank Private also slated for sale next year, the Government is left with only Australia Post, which made a net profit of $370 million in 2005-06 and is therefore worth about $7 billion. The residual 17 per cent stake in Telstra is worth $10 billion but the Government doesn't control it. While other nations such as China, Singapore, Russia, Korea, Kuwait and Norway build up huge sovereign funds, Australia, with its world-beating dowry of natural assets, still has a Federal Government with a negative net worth of $10 billion in the middle of an unprecedented commodities boom.

Even including the $52 billion in the Future Fund and all land and defence assets, these assets do not exceed the $50 billion in outstanding federal debt and $111 billion in unfunded superannuation liabilities as at June 30, 2007. The contrast with Singapore is stark indeed. This island nation of just 4.4 million people in a land mass broadly equivalent to Melbourne has amassed vast public wealth, although its private wealth is nowhere near the $8130 billion that the federal Treasury and Australian Bureau of Statistics estimate Australia's 21 million citizens have accumulated.

So how did this happen? It all started when Singapore Airlines wanted to buy the cornerstone 25 per cent stake in Qantas offered by the Keating Government in 1993, but lost out to British Airways. It took the defeat very badly. Its first major successful move came in 1995 when a Singapore government body, Capita Land, bought a controlling interest in Australand, the property developer that built the Commonwealth Games village. This stake is now worth $1.1 billion.

After staying out of the original $30 billion energy sector privatisation program in Victoria, Singapore Power, which is fully owned by the state, picked up the monopoly electricity transmission business Powernet for $2.1 billion in June 2000. This was quickly followed by Singtel's $14 billion bid for Optus in 2001. Singtel is 56 per cent government-owned, so Optus is now more publicly owned than Telstra — albeit by a foreign power. I, for one, switched my mobile phone contract from Optus to Telstra as a small consumer protest when Australian drug trafficker Van Nguyen was executed by the immovable Singapore authorities in 2005.

The next big bite was Singapore Power's $5.1 billion acquisition of TXU's Australian energy portfolio in April 2004, although $2.2 billion of retail and generation assets were on-sold to China Light & Power in March 2005. Late in 2005, 49 per cent of the remaining Australian power assets were floated in a vehicle called SP Ausnet, raising $1.3 billion. This reduced the total power sector investment to $3.8 billion, but now we have the huge Alinta deal in which Singapore Power is offering $4.5 billion in cash to become the monopoly gas distributor in NSW and the largest distributor of electricity in Victoria.

It will even own 50 per cent of ActewAGL — the company that keeps the lights on at Parliament House in Canberra. Coinciding with the Alinta deal has been a recent splurge of property investments. Frank Lowy sold to GIC a 50 per cent stake in Westfield Parramatta, Australia's third-most valuable shopping centre, for $717 million in May.

An even more prestigious purchase last month was the Myer Melbourne complex, which is now one-third owned by GIC after it teamed up with the Myer family and the Commonwealth Bank to buy it for $600 million. GIC already owns the Park Hyatt hotel in Melbourne, along with Sydney's Queen Victoria Building and the Strand Arcade, and there's been recent press speculation that it will buy into Westfield's Doncaster Shoppingtown to help fund a $400 million redevelopment.

But it doesn't stop there. Even child-care behemoth ABC Learning, which receives $3 million a week from Australian taxpayers to look after 40,000 children and has former children's minister Larry Anthony on its board, this month issued 12 per cent of its shares to Temasek for $401 million. In some countries, child care is provided by the state, yet our Government is now funding a company which has a foreign government as its largest shareholder to deliver this service. All this must make for interesting discussions when John Howard catches up with his Singaporean counterpart, Lee Hsien Loong, or his autocratic father, Lee Kuan Yew, who is still "GIC chairman minister mentor" at the ripe old age of 83.

Peter Costello was busily showing Lee Kuan Yew around Federal Parliament a few weeks ago and, given the 2003 Free Trade Agreement, it's fair to assume relations remain close. The same can't be said for Singapore and Thailand. In January 2006, Temasek bought control of Shin Corp — the family company of Thailand's former prime minister Thaksin Shinawatra — for $US1.9 billion ($A2.1 billion) in a deal that sparked widespread protests and a military coup.

The generals have since crippled Shin Corp's telecoms and satellite business to the point where Singapore has dropped well over $1.5 billion and relations between the two countries are severely strained. Could Singapore's financial imperialism ever cause tensions here? The only time Singapore has faced any takeover resistance in Australia was in 2000 when Peter Costello blocked a proposed bid for Westpac by financial conglomerate DBS Holdings, which is 28 per cent owned by Temasek.

However, Singapore Airlines remains bitter about losing almost $500 million in the Ansett collapse and being denied access to the lucrative Pacific route, which might explain why it is now funding Tiger Airways' assault on the Australian domestic market in an attempt to damage Qantas. Planes, child-care centres, shopping centres, department stores, satellites, hotels, power lines, gas pipelines and mobile phones: the Singapore Government owns all that and more in Australia yet this is barely mentioned in public debate.

Does anybody else out there feel a little uneasy about this phenomenon, especially given the secretive, autocratic and undemocratic tendencies of the Singapore Government? Australian companies, let alone our Government, would never be allowed to buy equivalent assets in Singapore. And all this investment didn't even give us the leverage to save Van Nguyen from the gallows.

Stephen Mayne was founder of Crikey.com and Kennett government spin doctor responsible for privatisation from 1992-1994.

The management consulting business has established numerous blocks of activity that involve financial and economic concepts. One involves projects of a strategic nature, particularly mergers and acquisitions, in which the valuation of a corporation is critical. A successful consultant needs to see the larger economic setting in which a company is embedded, assess a company's industry and its position within the industry, perceive the company's strategic options and understand which projects or acquisition targets best serve its broad strategic goals. In addition, the consultant must translate those broad insights into judgments about relative valuation of particular opportunities.

A second block of management consulting serves financial institutions as clients. The entire financial industry is going through a period of rapid change, which creates important opportunities for consultants to add value. Technology and deregulation are permitting old functions to be performed in completely new ways. Most of the large consulting firms have important departments servicing banks and securities firms, and some consulting firms are specialized entirely in the strategic and operational issues of the financial industry.

Effectiveness in consulting requires not only a high level of general education and exposure, but also a detailed understanding of finance and economics. The capacity to perform in-depth studies, in which the micro-detail can be related to the macro-problem, is the key attribute of a successful consultant.

Corporate finance means the handling of a corporation's financing needs, either within the corporation's treasury or within a bank or securities firm. It also includes advisory work bearing on financial issues. Corporate finance involves problem solving. People who excel in this area are those who can see the big picture, then dig to considerable depth into particular problems.

Treasury

The critical work done within corporate treasury, where projects are analyzed and financing alternatives considered, is sometimes overlooked. The intellectual job content is very similar to that of the bankers who serve the corporation; indeed, the treasurer and his or her staff are the primary clients for most corporate financial services. In choosing between the corporate world and Wall Street, students should know that the primary difference is one of lifestyle. The treasurer is the client and so is typically called on by the bankers; he or she does not have to travel nearly as much as bankers do, or feel the intense pressure of serving a number of clients simultaneously or the pressure to keep generating and closing transactions. Relatively few corporations recruit at business schools as aggressively as banks do, so those interested in corporate work may have to seek out their own opportunities. A benefit of this is far less competition from other students.

Relationship Management

Most banking firms have a group of corporate finance generalists, who are defined by their list of clients and the reputations they develop as trusted financial advisers. They are relationship managers and often specialize by industry, particularly when an industry, such as airlines or utilities, has specialized financing techniques or instruments. They must have the capacity to ferret out opportunities, to get their clients to disclose their true problems and concerns. To do this well requires a large investment in understanding the client and the client's world. A good corporate finance generalist never calls on a client unprepared but goes to a meeting having done the homework and able to at least guess what problems the client may be worrying about and suggest a range of ways to approach them. Even if the guess is not 100 percent accurate, the client will appreciate the initiative and the desire to see the world through his or her eyes. Relationship management requires skill with people and situations as well as substantial technical knowledge.

Mergers and Acquisitions

This special domain in corporate finance needs to be singled out because it is pursued not at the treasury level but at the CEO level. In banking firms it is typically done by a specialized group, sometimes further broken down by industry. This job is one of the most intense in finance because so much is at stake. Mergers and acquisitions people are on call at all hours of every day and must be prepared to sacrifice their personal lives repeatedly in the interest of transactions that cannot wait. Rewards for success and punishments for failure are both very high. Ethical issues are close to the surface. One must know how to handle confidential information and how to recognize conflict of interest. Industry knowledge is very useful, since most acquisitions are within the same industry and are driven by strategic considerations. A skillful mergers and acquisitions professional comes up with creative acquisition ideas and can work through a tangle of legal, accounting and tax issues. He or she must also have the self-confidence and personal presence to deal effectively with CEOs. This is not an area for the timid.

Equity Underwriting

In an earlier era on Wall Street, all equity underwriting was handled by the generalists. In some firms today, equity underwriting has become the domain of specialized teams, particularly when it is viewed as a major source of new business. These teams develop opportunities for both initial public offerings (IPOs) and for new issues of seasoned equities. The transaction process involves writing, under SEC guidelines, a detailed prospectus describing a company's history, opportunities and risks. It also involves underwriting through a syndicate of securities firms. Important equity issues involve taking the corporate management to selected cities to make presentations to institutional investors. Effective professionals in the equity area are well versed in accounting, tax and securities law and are generally associated with strong distribution networks. Above all, they have a close feel for the stock market and watch it constantly.

Capital Markets

Commercial Paper

Securities firms, including those associated with some banks, offer commercial paper services to corporations as a less expensive alternative to bank borrowing for short-term corporate needs. This is a relationship business, often with daily conversations about market conditions and corporate needs. Commercial paper itself is a simple instrument, so the skills are not those of structuring so much as those of knowing markets intimately. This brings commercial paper services very close to the world of sales and trading.

Debt Underwriting

The SEC registration requirements for debt underwriting were dramatically simplified in the 1980s, so that new debt issues usually can be bid for and bought by single firms or small groups of firms without the complex mechanics of an underwriting syndicate. Consequently, winning new debt issues from corporate clients involves up-to-the-minute market information and a sense of sudden market opportunities. Capital market professionals, who are most often to be found on trading floors, specialize in knowing which corporations are inclined to issue what forms of new debt. This area is also akin to trading in that it lives on a substantial volume of transactions. Because debt underwriting has also been globalized, effective professionals in this area must understand opportunities in debt markets the world over. They must have a keen understanding of the mathematics of fixed-income securities and an intuitive sense of markets.

Swaps and Options

The business of creating and using swaps and options is intimately connected with debt underwriting. Most swaps are written to match a debt instrument and convert it, in effect, to a different type of debt instrument--one currency to another, fixed rate to floating and so forth. Options, too, are often embedded in capital market instruments--alternative repayment currencies, for example. Capital market professionals specializing in derivatives need a highly creative and quantitative turn of mind to spot market anomalies and turn them into combinations of debt and derivative instruments that can be sold. This is a great domain for computer gurus and math experts, but it also requires a practical sense of markets.

Real Estate and Mortgage Finance

As a capital-intensive industry, real estate has historically been tightly tied to the capital markets, yet current trends are radically restructuring past relationships. Real estate finance is being revolutionized by securitization--on both the debt and equity sides of the market. The pooling of mortgages and the creation of various claims against the pool have created new classes of fixed-income securities out of both residential and commercial mortgages. On the equity side, the rapid growth of publicly traded real estate securities has created significant investment opportunities and stimulated widespread business consolidation. Both career arenas are full of potential. The behavior of mortgage-based securities, particularly the more exotic ones, is still not fully understood, but the utility of creating derivative securities from mortgage pools is very high. Real estate markets are still relatively inefficient where the potential for value-creating transactions remains high. Skillful professionals in the mortgage-securitization field combine a thorough grasp of debt markets, derivatives, mortgage origination and government programs. Finance professionals focused on real estate investment banking and mergers and acquisitions combine sophisticated knowledge of real estate fundamentals, corporate finance, financial accounting and business strategy. Both groups can use quantitative tools with ease.

Risk Management and Funding

Every financial institution must attend not only to the funding of its clients but to its own funding as well. Furthermore, it must understand the risks it is taking, for businesses such as derivatives involve a firm's own balance sheet in a complex way. Such functions are among the most cerebral in any financial institution and attract people with exceptional ability to see the whole portfolio of assets, liabilities and off­balance sheet commitments as a complex of interacting quantitative risks. The tools of risk management, which are still evolving, are taught in several advanced courses. Many consulting firms specialize in risk management tools and systems, a field that is changing rapidly.

Sales and Trading

Trading

Traders buy and sell stocks, bonds or foreign exchange for a firm's own account. A great deal of money can be made or lost based on a single trader's decisions. Trading skill is somehow intuitive--almost like an athletic ability--and you don't really know if you have it until you try. Good traders sense the market's direction and quickly get in front of the momentum. They need not be charming and people oriented--they just have to be right more often than not. They keep a lot of quantitative information in their heads at all times, and their time horizon is very short. Trading somewhat resembles a gambling game, but it is not random. It takes steady nerves, concentration and good intuition, plus a comprehensive knowledge of markets.

Institutional Sales

In contrast to traders, salespeople need to be people oriented. They meet the needs of institutional investors, including corporate treasurers, by finding the right securities at the right prices. They must gain the confidence of their customers and often negotiate with traders in their own firms to obtain the best prices for important customers. There is also an element of socializing with the customers, to be more than a voice at the end of a telephone and to learn more broadly the customers' needs and preferences. Effective institutional salespeople know their customers well and often bring them new investment ideas.

Private Clients

Most financial institutions also have a sales force catering to wealthy private individuals. This work resembles institutional sales but is more individualistic and idiosyncratic. A private-client specialist is a kind of stockbroker, in that he or she lives solely or primarily on commissions and must constantly bring new ideas to clients. Strong social skills are necessary here as well, and the best private-client professionals develop a franchise of individuals who trust them and give them business.

Investment Management

Fund Management

The mutual fund industry has grown explosively and has attracted individuals from many backgrounds. The ultimate skill of a first-class fund manager is to articulate and implement a particular portfolio strategy that shows some promise of delivering above-average performance. Typical strategies are value based, contrarian or momentum based. Some celebrated fund managers have simply had a knack for finding lesser-known companies and understanding which of them were destined to succeed. This is the area of finance in which advanced theory, as taught not only in the MBA program but also in the PhD program, has its greatest application. Fund management is less cyclical than many other financial careers and is often less frenzied than the sell-side jobs.

Equity Research

An important career opportunity often overlooked by students is equity research. Analysis is done both on the sell side for brokerage firms and on the buy side for mutual fund managers and other investment managers. Sell-side analysis involves writing up stock purchase ideas that can be used by salespeople with their customers; it usually has an optimistic slant. Buy-side analysis is somewhat more detached and is used by fund managers in their investment decisions. A good analyst needs to be diligent and scrupulous about accurate details and must enjoy spreadsheets and careful comparisons.

Private Equity

Venture Capital

This specialized form of investment management provides funds to companies at early stages in their development, typically before their initial public offering of stock. It has enormous appeal to business school students but is difficult to enter. Many venture capital firms specialize in certain emerging technologies, and they most want to hire individuals with operating backgrounds in those technologies. Students with such backgrounds have a natural advantage in competing for venture capital opportunities. Without such a technical background, it is difficult to enter the venture capital business straight out of business school.

Leveraged Buyouts

Many financial institutions and private partnerships pursue leveraged buyout equity investment. This involves buying entire companies, whether private or public, with relatively modest equity investment. This has become an important business for all types of banks, some of which use the misleading phrase "merchant banking." Individuals selected for this area often have experience in such other arenas as mergers and acquisitions. They must combine negotiating skills with an astute sense of what makes an operating business successful. This, too, is a difficult area to enter straight out of business school. Most private equity funds bring on people with substantial transaction experience.