• 
• 

Published on November 7, 2007

Although most of the Thai financial world has escaped any direct effect from the US sub-prime lending crisis, share prices have nevertheless suffered a psychological blow.

The whole event, obscured as it is by cultural and geographical distance, represents something of a lesson in that it is one of the many risks faced by ordinary investors and about which they should be warned.

Too often, investors bask in a false sense of being "in control" while at the same time sales representatives and even fund managers at asset-management companies gloss over the risks associated with some investments.

"So while fund managers pursue returns, risk managers make sure these returns are generated by acceptable risks," says Bangkok Bank's Bancha Serngadichaivit, explaining his role as a vice president overseeing the bank's risk management department.

While pointing out that most non-institutional and small-time investors are overly concerned with net asset values and yield, Bancha, a chartered financial analyst (CFA), indicates three columns in his weekly performance reports on all mutual funds. To the uninitiated, they are just a mass of numbers with lots of decimal points.

"When you're looking at these funds, always ask for these risk ratios," he says, explaining how, for instance, the Sharpe ratio can help to determine the risk-adjusted performance of the portfolio returns.

Quantifying these risks is an important part of what Bancha does for a living. With a staff of four, he sets out to protect what he sees as the average retired grandmother with, say, Bt1 million in her bank.

This sounds refreshingly noble, considering what "the greed merchants" - to borrow the title from Philip Augar's book - have done to our pension funds and savings. Augar was referring, of course, to investment banks and how they have played the free-market game. The "game", with its voracious hunt for new players, is not without its serious bloodletting.

One July 31, having misplaced its bet in low-grade collateralised debt obligations (CDOs), Bear Stearns was in deep trouble as a direct consequence of the sub-prime fiasco. With two of its hedge funds kaput, the investment bank was trying to stop the bleeding by barring clients from withdrawing any more cash from its third one. As one of Wall Street's most entrepreneurial firms - with comparatively more income derived from trading than other houses - Bear Stearns had already seen the departure of a co-president, a senior managing director overseeing US government-bond trading and a senior trader.

On the same day at the Lowry Institute in Sydney, Australia, John Lipsky, first deputy managing director of the International Monetary Fund, delivered a speech in a room full of finance ministers, policy-makers, economists and dignitaries from Asia-Pacific Economic Cooperation member countries.

His message, hidden in much euphemism, was that the world - economically, at least - was heading towards government by "financial innovation and globalisation".

Despite what Lipsky called "limited damage" from sub-prime CDOs, Eric Chaney, Morgan Stanley's chief economist for Europe, gave a stark warning in an article published recently in Newsweek. Such "globalised innovation", he said, had ushered in an era where "too many managers buy [complex financial] products they do not understand". Moreover, the sellers are no more able than the buyers to translate the risks buried within these "obscured financial equations".

Hence, risk management and Bancha Serngadichaivit's job. And although risk management may sound just as exotic as some of the financial instruments it attempts to assess, it is not.

"It's like driving a car towards a destination," Bancha says, explaining that there are many "What if?" questions that could be asked each time you start your car's engine, such as: what if the tyres go flat on the way? Risk managers examine investments in a similar fashion, by asking all sorts of questions about worst-case scenarios.

"If you cannot accept [the risk], then you fix it," says Bancha, who guards investment by Bangkok Bank's provident and private funds. He boils the whole bewildering process down into four stages: managers must identify, quantify, manage and, finally, optimise their position regarding a wide array of risks. Therefore a good risk manager requires a "wide and holistic" mindset. It also helps not to be biased, he adds.

"There are many uncertainties in this world. The best you can do is evaluate all of the available alternatives, then give it your best shot," he says.

Bancha has always given it his best shot. Following in the footsteps of his father and older brother - and like many others from the cream of the Thammasat University crop, such as the late Boonchu Rojanastien - he joined Bangkok Bank in 1998. As a fresh graduate during the financial crisis, he plunged into the world of distressed and debt-ridden companies, working on special asset management.

After two years at the bank's Silom Road headquarters, the young Bancha was awarded a bank scholarship to enrol in the Sloan School of Business at the Massachusetts Institute of Technology (MIT).

Upon arrival, Bancha was invited for an interview with Dean Jeffrey Barks, but the meeting was no walk in the park. MIT, with its glittering array of legendary alumni, has a rigorous method of separating the grain from the chaff.

Bancha recalls how, starry-eyed, he joined five other candidates. They were greeted by Barks, who was wearing a Hawaiian shirt. Then came a shock when all of the MBA hopefuls - wearing suits and ties despite having been invited to come in casual wear - were interviewed simultaneously.

"Looking back, the interview was perhaps as uneventful as being rammed head-on by a train speeding off its track," Bancha says.

Despite graduating with a perfect five-point grade average, Bancha recalls that studying among the best was the most humbling experience of his life.

"[At MIT] you could meet someone who could compute square roots to five digits in their head."

If nothing else, it made him realise he was not the best in everything.

The secret to his success, he says, has been his "No 2" mentality. As a lad, Bancha's brother, Artit, who now works in the US for the World Bank, was always the smart one. So with nothing to lose, he kept trying harder.

"Once you think you're No 1, then you're done," he concludes.

Having studied in two very different environments and cultures, Bancha admits that his Thammasat days were much more intense, because students - at least the studious ones - studied all day. At MIT, without the heavy workload there were also soft skills to learn.

"In the US, people value their quality of life more," he says, adding that after his studies, he worked in New York for Salomon Smith Barney before the firm merged first with the Travelers Group and later with Citigroup. However, there were days when he would burn the midnight oil until two or three in the morning. But that was more common in Singapore, where Bancha worked for only three months before returning to Thailand three years ago.

It was a lucrative three months. Imagine your salary exploding 30-fold, he suggests, adding with a grin, "I saved enough in those three months to propose to my girlfriend."

Despite his busy schedule - although he has stopped using his Blackberry - Bancha still finds the time to help promote the CFA Society, having recently been appointed to its board of directors to promote public awareness of the CFA Institute in Thailand.

The "chartered financial analyst" designation is what many in the finance business long to add to their MBA on their business cards, in hopes of increasing their income several times over. But the CFA tag does not come easily.

The three examinations for recognition as a CFA are of the post-graduate level and require an average of three years to complete. And on Level I, even if a candidate passes all other sections, he or she can fail on the ethics section.

Charter-holders must also adhere to a strict code of conduct, for if clients complain to the society, and their allegations prove to be true, the prestigious title can be revoked.

With corporate greed seeming to attain new heights (remember the collapse of WorldCom and Enron?) and increasingly lax regulations among bourses in their efforts to attract more listings, there has perhaps never been a greater need to keep finance and investment on a straight and narrow track. CFAs may be one answer.

"The CFA designation is the gold standard for the finance industry," Bancha says.

 Ki Nan Tsui

 The Nation