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The astute contrarian

Chan Chao Peh
Chan Chao Peh • 7 min read
The astute contrarian
Goh Tee Leng continues the family trait of making canny investment decisions that go against conventional views
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Goh Tee Leng continues the family trait of making canny investment decisions that go against conventional views

SINGAPORE (Aug 19): During the global financial crisis, conversation at the Goh family dinner table was not about the carnage in the markets. Instead, the family discussed which stocks to buy. To 28-year-old Goh Tee Leng, that experience a decade ago was an eye-opener, and inspired him to build a career in fund management. It also shaped his strategy of looking for deep-value stocks, rather than punting on the flavour of the month.

Tee Leng’s grandfather, Tjoei Kok, had also gone against the current, and taken bold steps where others had hesitated — albeit in an earlier era and on a very different scale.

In 1959, with its newly achieved self-governing status, Singapore was focused on growing its economy beyond the traditional entrepôt. Labour-intensive, light industries were favoured instead of capital-intensive ones such as steel production.

This is because, apart from the hefty capital investment, coking coal and iron ore had to be imported — factors that made most businessmen at the time stay clear from the steel industry. But Tjoei Kok, together with a business partner, Soon Peng Yam of Sim Lim Group, forged ahead.

In August 1961, they started the National Iron and Steel Mills with a nominal capital of $50 million, with the Singapore Economic Development Board putting in 20% of the equity. The entity was later better known as NatSteel.

After setting up the steel mill and other businesses, Tjoei Kok aimed for something bigger. In 1973, he founded Tat Lee Bank. While the family interests in NatSteel and Tat Lee Bank were eventually divested, the Gohs have stakes in companies involved in property, palm oil and several other industries. “That’s how [my grandfather] made money — by not doing what everyone else was already doing. When people are pessimistic, that’s when you enter,” says Tee Leng in an interview with The Edge Singapore.

He is adopting the same contrarian approach in building his own business and making investment decisions. Tee Leng is familiar with the experience of many family businesses in Asia: The first generation gets things started; the second builds on the foundation laid by the first; and the subsequent generations have mixed results. Nevertheless, the priority for most families is still wealth preservation. Many have turned to private banks for help in managing and preserving their wealth.

Yet, Tee Leng is not convinced that the fees charged by private banks are worth it. He believes the right business model for a fund is not to charge a base management fee but to take a cut only when performance targets have been achieved. Thus, he has set up Heritage Global Fund with two other partners.

According to Tee Leng, there are not many funds operating on such a model, and his fund will appeal to many people. “There will be more demand in the future as more wealth transitions to the third generation,” he says. The three-year-old fund aims to grow to between $50 million and $100 million in the near future.

Value investing

Many investors of Tee Leng’s age, with time on their side, tend to prefer higher-risk, high-growth stocks. His approach, however, is to seek out so-called “deep value” stocks — those seen as having a higher chance of giving higher returns as the business cycle turns and accords these stocks with the fair valuation their business fundamentals deserve. “Everyone knows that a Porsche is a good car, but I want to be buying one at the right, cheap price,” he explains using an analogy.

In this aspect, Tee Leng is a bit different from his father Eng Heng, who used to work at Merrill Lynch and whose preference was to invest in bonds and enjoy a stable cash flow. “If you invest in fixed income, at the end of the day, the underlying asset is still the company,” Tee Leng says. “Why not invest in the company’s equity, when valuations are more distressed, and make the capital upside while collecting dividends?”

He also differs from many fund managers in another aspect: Most pay a lot of attention to the environmental, social and governance factors when making decisions on whether to invest in a company. He recognises that there is growing awareness on the part of investors as well as the companies to improve on ESG matters, but says he is not too fixated on investing only in companies that do well on ESG metrics. “I want to invest in companies with strong fundamentals and a good management.”

He points out that many companies, especially the small- and medium-cap ones, are not known for scoring highly on ESG metrics, simply because they do not announce that aspect of their operations. If he were to limit himself to investing only in companies that have been given high scores on ESG metrics by external validators, he risks reducing his investable universe to a much smaller one. As it is, there are not that many deep-value companies that fulfil the requirements on his checklist. “At the end of the day, the fund has to deliver returns to my investors. As long as we find good companies, with good and honest management and cheap valuation, we will invest,” says Tee Leng.

Some fund managers prefer to play active roles in influencing the business decisions of the companies they invest in. A common way to do so is to highlight the shortcomings in the companies’ corporate governance practices. Family-controlled and run companies, especially prevalent in Asia, are often the targets of these fund managers. Many of these families are seen as enriching themselves unfairly at the expense of the minority shareholders. “This is the East, we can’t expect Western levels of corporate governance,” Tee Leng notes.

He sees no point in open confrontation with a company’s family-controlled board at public forums such as annual general meetings. “Face” is at stake, he reasons. Instead, he prefers pushing for change or extracting concessions through communication behind closed doors.

Tee Leng says he is willing to “close one eye” to certain practices. A founder of a company, for example, might be a classic case of rags to riches, and may give himself a nice bonus. Tee Leng is fine with that. He does, however, see a problem in cases where the company’s management comprises mainly family members, each drawing hefty salaries for not doing much. What is worse, in his view, is giving share ­options and using talent retention as an excuse. “If you need to issue share options to retain family members, then something is very wrong,” he comments.

Being self-sufficient

In recent years, philanthropy has grown to be a sophisticated activity. There are professionals advising the wealthy on how and where to give their money. Philanthropy used to be very straightforward: Write a cheque to a charity and in return, be honoured with the naming rights to schools, halls or libraries. There is a professorship at Nanyang Technological University named after Tjoei Kok.

By contrast, the newer generation of philanthropists is believed to prefer a more hands-on approach, taking a direct role in managing where the money goes and how the funds are used. When asked whether he belongs to the latter category, Tee Leng candidly says philanthropy is not his top concern now. “I suppose when I’ve made enough money, then the next question will be how I can use this money to benefit society. But that’s more in the future.”

He cites a classical proverb favoured by Chinese scholars with ambitions for office: To manage a country competently, one must first hone his character and bring up a family properly. “I’m still at the stage where I need to cultivate myself and raise my family. If you can’t help yourself, how can you help others? I may come from a privileged background, but at the end of the day, my family still strongly believes that I have to make my own money.”

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