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Managed funds to die for

By Michael Coote

Friday 7th March 2003

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Speculator of the year award should go to Kim Jong Il, North Korea's dictator. Misunderstood as a supposedly unsavvy communist, Mr Kim is reputed to have had enemies burned alive but his pyrotechnic displays of extortion deserve greater celebration.

For the small capital outlay of withdrawing from the odd treaty, refiring up a nuclear plant and blasting off a few short range cruise missiles, he stands to be bought off with yet more hundreds of millions of US dollars. It is impossible to play even the futures and options market for similar rates of return on mere fireworks.

I am all for a KJI Golden Handshake Leverage Fund to cover me in retirement. Mr Kim would surely be No 1 global fund manager if he maximised his talents. He can have my life savings any day on the payout ratios achieved thus far.

One of the extreme ironies of present American hostility to Iraq and North Korea is that in each case the target lies in eliminating Stalinism. We are back in the McCarthy era, relitigating the Cold War.

Mr Kim is an outright Stalinist, while Saddam Hussein maintains probably the world's largest private library on Uncle Joe. Incidentally, Mr Hussein deserves a speculation award for dumping the greenback as the enemy's currency and buying the euro instead, a move that may have secured French and German dovishness.

Pity for him he didn't buy the pound. We can call that the Iraqi Cut-off-your-nose-to-spite-your-face Fund. Recommended to all tempted by martyrdom.

China, poised to become America's serious rival, is in the process of cosmetic surgery on the Stalinism with Chinese characteristics that Chairman Mao Zedong, who revered Stalin, bequeathed his compatriots.

So far it has simply excised the chairman's facial mole. Stalin himself must be laughing from his grave. He managed to create a bete noir for the capitalists that has survived into the third millennium.

The west is still paying through the nose to be rid of the legacy of the evil genius of Marxist-Leninism. Just look what he is doing to stockmarkets in 2003. Here in New Zealand, we continue to cede Stalin his royalties through political correctness, a concept his regime invented.

Whatever is politically correct, its pedigree can be traced back to the intellectual property of the tyrant from Georgia. We need a Stalinist PC Fund, which would find inexhaustible domestic investment opportunities.

Stalin must be one of the most successful politicians of all time. He still continues to define and direct geopolitics. Had he gone into business, he would have been loved and admired as one of the greats.

Churchill and Roosevelt have dwindled into nobodies, whereas Stalin has only Hitler as a heavyweight contender for lasting influence. Stalin would have been an ace fund manager: "Losses, what losses?" accompanied by the staccato crackle of small calibre pistol fire. Carping critics would be silenced out of respect or death.

A managed fund based on Stalinist principles is an intriguing concept. Indeed, the former Soviet Union is arguably understandable as just that. Given a three-year bear market for which investors are baying for blood, the practice of regularly arresting, beating and shooting fund managers on trumped up charges of financial sabotage and working for the opposition would generate widespread satisfaction and few complaints about fees.

The fund would operate on a full takeover model, routinely acquiring uncontested a 100% shareholding in target companies, and would boost utilities stocks by railroading all the workers to Siberia. Building stocks would be a good play as well, busy as they would be with constructing labour camps.

Let's call it the Kulak Fund. Slap on to it a zero coupon bond and, wey-hey, it's capital-protected, right up western bankers' alley. No more human rights squealing.

Another ripper for the punters would be a Saddam Hussein Short Selling Fund. It would specialise in distressed assets, principally Mr Hussein's life insurance policies, plus fire and general policies, Iraqi chemical plants and any real estate that looked like a missile launch pad, and would short oil.

About the only losing proposition the fund would steer clear of would be call options on American imposition of democracy, although puts would be a good bet. The odds would be favourable, through a betting agency, for another massacre of Kurds by the Turks a la 1913. Similar vulture funds are doing well out of what is left of the corporate west.

Given the woeful performance of conventional investment in stocks and the sophistication and depth of financial markets, not to mention the desperation of baby boomers to have their pensions and medical bills blank chequed in retirement, it is truly surprising that fund managers have not stepped into the breach with a new breed of products.

One more they might like to consider, in light of the view revealed by a Sovereign survey (NBR, Mar 28) that those who spend their non-working lives on welfare imagine that the Big Cullen Fund (BCF) will cushion their retirement on the Gold Coast, would be a BCF Crushed Expectation Fund.

Its only asset needs to be a long-dated put option on public confidence. The BCF would probably even write it in eagerness to invest in New Zealand. Provided it looked like sustainable business, the Greens could be relied upon to insist on it.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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