CASE STUDY MRS. LEE Background information Mrs. Lee, who is in her late 40s, is a senior manager working for a multi-national corporation with USD 12 billion in global sales. She has a son aged 20 who, in 4 months time after completing his National Service, will be enrolling in a medical programme of a reputable Australian university for the next 4 years (annual expenses including fees, lodging and miscellaneous items for a Melbourne based university education can be assumed to be SGD 65,000 per annum). Her husband, a professional engineer, has passed away about 2 years ago from a heart failure and the insurance proceeds have just been paid out. Current situation Due to the very difficult structural challenges faced by the parent firm in the US and in the light of the slow industry recovery from the COVIC-19 pandemic. Mrs. Lee's job has been made redundant. As part of her retrenchment benefits, Mrs. Lee has been paid a lump sum gratuity of SGD 500,000 due to her long years of service. In addition, she also managed to sell all her share options in the firm and received proceeds amounting to SGD 300,000 Together with the family savings of SGD 250,000 which she had intended for use on a rainy day and the death benefits from the insurance pay out of SGD 750,000 from the life policy. Mrs. Lee reckons she now has investible funds totalling SGD 1.8 million in cash to meet her various needs. Your role As a student of GSP 177e Fundamentals of Investing and based on what you have studied thus far, your role here is to provide advice to Mrs. Lee on how to invest her surplus finds Investment proposals Over the past 2 months, Mrs. Lee has been meeting with various financial professionals with a view of investing her funds wisely. Specifically, she has narrowed down and is attracted to the proposals made by the following executives: 1. Ms. KWA, who is the Executive Director of PANDAMIC Energy Resources Pte. Ltd. (*PERPL'), a privately held firm specialising in energy investments, distribution and marketing, suggests that Mrs. Lee sets aside finds to invest with her firm According to Ms. Kwa, the expected returns amount to 2% every 3 months on the total funds invested. As an illustration, clients who invested SGD 100,000 at the beginning of each quarter (the fixed dates are 1 January, 1 April, 1 July and 1 October) will get their original investment amount of SGD 100,000 together with the return of SGD 2.000 at the end of the respective quarter (31 March, 30 June, 30 September and 31 December). If only the principal funds were rolled over every quarter on an annual basis, clients could potentially obtain SGD 8,000 in returns over a 12 month period. At the end of each period of investment, the principal sums invested and the retums are paid back to the investors so that they could decide whether or not to continue investing and if so for whatever amounts in the following and subsequent quarters. Ms. Kwa recommends that Mrs. Lee invests with her firm an amount of at least SGD 800,000 for a minimum period of 4 years so that the burden of finding her son's entire education can be taken care of. She further emplasizes that the investment duration with her fimm is relatively short term in nature. Hence, there is no need for her to be overly concemed about its liquidity. Moreover, there is no compulsion for her to continuously invest every quarter as she can get out at the end of each investment period if she needs the funds and can re-invest whatever amounts again in the subsequent quarters or not at all Just a week ago, Mrs Lee attended an exclusive private presentation held by PERPL through a ZOOM meeting at the invitation of Ms. Kwa where she leamed of the following: a. The minimum amount to invest was an affordable SGD 50.000. Most of Ms. Kwa's clients had invested amounts ranging from at least SGD 500,000 to SGD 2 million each over the past 6 years ever since she joined in 2015. These clients preferred such investments due to the relatively short duration, considering that each investment period is only 3 months, unlike other investment products which might require longer periods of commitment with much less certainty of retums. b. As explained by the Managing Director of PERPL (Ms. Kwa's boss), the invested funds from clients were being held in trust and secured through first charges or "lien" on specific oil fields and gas reservation sites belonging to the firm located in the well-known shale oil area of Dakota in the US. Such investments were fully secured and duly documented. In addition, the oil and gas reserves were properly certified by experts investors could view at PERPL's Marina Bay Suite office the various documents which had been duly prepared and certified by lawyers who were experts in this area). In this mamet, an investor could be assured of getting his or her returns as the whole investment process would be properly documented and be above board c. PERPL had very well established track records, having tied up with professional middlemen and other connections with the oil majors that allowed it to pre-sell oil and gas reserves to achieve the desired retums. Since oil prices had been stabilised only recently, the future prospects for the industry and for the firm in particular, had never looked better. Hence, investors were assured of the safety features of their investments with the firm. d. The Managing Director of PERPL gave an assurance to the limited capacity audience (due to COVIC restrictions and safety measures in place) that there were no currency risks for investors since the returns and the funds being invested would be denominated and paid back in SGD. Similarly, investors would not face any risks or uncertainties in the oil and gas markets as the proven energy reserves have been pre- sold through secured contracts. e. A couple of investors with prior experience of investing with PERPL went on record at the ZOOM meeting to give first-hand testimonials and shared their investment experiences. They had gone on fact-finding field trips to the actual project sites in Dakota to witness for themselves the development of the projects they had previously invested in prior to the world-wide outbreak of the COVIC-19 pandemic. These investors had successfully obtained the returns as promised as well as their invested principal amounts. Of course, these satisfied investors indicated to the audience in the meeting their intentions to make further investments with the firm. As Ms. Kwa was aware of Mrs. Lee's financial situation, she told her that if she were to invest diligently and sufficiently through her recommendation, her son's education funding needs and her own financial requirements could be more than adequately taken care of. In view of the above and considering that Mrs. Lee has known and trusted Ms. Kwa for more than 25 years (Mr. and Mrs. Lee have bought their existing house through Ms. Kwa when the latter was a property agent and had remained in contact ever since). she (Mrs. Lee) was keen to take up this proposal to meet her financial goals. 2. Mr. Heng. Senior Managing Director in the Private Wealth Management Division of VAXXINE Bank Ltd. (its listed name is "VBL on an overseas stock exchange). proposes that Mrs. Lee places her available finds with VBL in a discretionary investment management account so that it can grow at an average of 3 -12% p.a. this was based on the audited track records of the bank's performance for similarly managed investment portfolios over the last 35 years). At a previous meeting with Mrs. Lee held a fortnight ago, Mr. Heng had explained the workings of a discretionary investment account as one in which the investments were specifically tailored, managed and segregated by VBL for each individual investor While the team of economic, stocks and investment experts at VBL would make all the necessary investment management decisions such as asset allocation, which stocks or bonds to invest in and provide detailed records and statements with regular reviews, there could be occasions when the clients as investors could give specific instructions to override the investment decisions, liquidate the securities, withdraw partially or even terminate the account depending on the circumstances by giving due notice. In other words, a discretionary account is one where the bank (VBL) is given a mandate by the client to make investment decisions on his or her behalf and at the same time the client himself or herself can have full control over his or her funds. As proposed by Mr. Heng, the funds to be managed by VBL for Mrs. Lee will be invested in a diversified portfolio that comprised traditional asset classes. After 2 further meetings with Mrs. Lee, Mr. Heng recommends the weightings of the portfolio for Mrs. Lee to be comprised of local stocks (50%), cash deposits and foreign currencies (10%), bonds (10%) and foreign stocks including the US and EU (30%). Even though VBL will have full discretionary power to manage the investments on her behalf as it saw fit. Mr. Heng repeatedly assured Mrs. Lee that the individual asset class weightings could be altered to suit her needs. Any of her specific requests such as her desire not to invest in say, casino, gaming, tobacco or liquor stocks can be accommodated if these and any other requests are made known in advance to VBL The minimum amount accepted by VBL for such a discretionary investment account or service is SGD 1 million with no cap on the maximum that it could manage for clients. Assumptions The house in the Goodman Road vicinity in the East that Mrs. Lee and her family currently lived in is fully paid for. She has more than adequate insurance policies to cover her entire family for medical and long term disability and premature death benefits as various policies were purchased years ago when she and her husband first started working. Therefore, it can be assumed that insurance coverage will not be considered by Mrs. Lee in her current investment decision deliberations. Given the circumstances, it is unlikely that Mrs. Lee will be able to find a similarly well-paying job like her last one for the foreseeable future. For the purpose of this case study, please bear in mind the following: 1. Other than the above investment proposals, Mrs. Lee does not wish to consider evaluating or investing directly by herself in properties, annuities, listed equities, bonds, REITs and mutual funds (unit trists) OR with other insurance companies, banks, brokers, investment houses, independent financial advisers OR through online and intemet accounts. 2. For the sake of simplicity, please do not consider bank fees or charges, discretionary investment account management fees, brokerages, stamp duties, commissions and charges, capital gains taxes and income taxes in Mrs. Lee's investment decision- making process. 3. As for the economic environment in Singapore, you can assume that the interest rate for short to medium term bank deposits is 0-1% pa, while the annual inflation rate in Singapore is in the region of 2 -3%p.a. 4. Please do not take into account her CPF balances and their effects on Mrs. Lee as she intends to leave her CPF account intact. Assignment Based on your understanding of the investment tools and concepts that you have learned thus far, identify, examine and illustrate how you can use the same tools and concepts to advise Mrs. Lee on allocating and utilising her investible funds of SGD 1.8 million Describe and discuss your recommendation(s) (in 800 - 1,000 words) by analysing with whom and how Mrs. Lee should or should not invest the cash she has on hand given her situation. Compare and appraise the relative merits, demerits and risks involved and appraise the potential outcomes if Mrs. Lee were to take up all your recommendations. You can also synthesise and give additional suggestion(s) and or alternative(s) where appropriate (after giving due consideration to the various assumptions and constraints outlined above and below) all of which must be duly supported by sound and detailed arguments. Additional Guidance Notes For Students 1. In presenting your recommendation(s) to Mrs. Lee, state the relevant steps involved in arriving at such a conclusion(s). This should include providing details of your analysis in determining Mrs. Lee's various needs, requirements and objectives and how your recommendation(s) meet these criteria. 2. Demonstrate your inderstanding of the investment concepts and tools that you have leamt (refer to your course Study Guide) in preparing your reconumendation(s) with sound reasons and explanations. Consider the following in your write-up: a. Have you conducted a thorough evaluation of Mrs. Lee's investment circumstances and requirements regarding her investor profile, stage of life cycle investing, liquidity needs, risk tolerance, time frame for investing etc. before deciding what her investment objectives and requirements shall be? What products or proposals and asset allocation models will be most appropriate for her given her situation based on your analysis? (Please note that mere listing or repeating of Mrs. Lee's circumstances as provided in the case is NOT the same as profiling. Profiling requires you to anahise and come to conclusions that for her requirements regarding investment objectives, risk tolerance, time horson for investing, liquidity needs, etc. that in turn will help determine products, products and asset allocation model that meet her needs.) b. Have you carried out a proper analysis of the proposals and considered the various risk factors or possible alterations in terms of asset allocation and diversification to meet Mrs Lee's needs as previously analysed by you under 2.a. above? Have you considered the business environment, legal and regulatory framework in your recommendations for Mis. Lee in her investment decision making process, topics which you have covered under your self-study? c. Have you prepared your recommendations based on your understanding and analysis and showed Mrs. Lee the potential results or consequences of your suggestion(s)? d What potential issues of problems would Mrs. Lee face if she were to accept your recommendations? Are there any other mitigating factors or actions that Mrs. Lee can consider or take to reduce the uncertainties of risks if she were to fully accept your recommendations? 3. Include additional assumptions which are reasonable and appropriate if these help you to further enhance and make sense of your advice to Mrs. Lee. (Any assumptions made which are not directly given in the case study itself should be relevant, reasonable and properly explained.) 4. Use graphs, charts and tables, etc. where appropriate to clearly illustrate the various points in your presentation. Bear in mind that such graphical representations not only save on the words you use but also could be an efficient and effective means of communicating your ideas to Mrs. Lee provided that they are relevant, up to date, and have clear notations and explanations. You need to relate and provide simple explanations to Mrs. Lee all your charts and graphical representations in your submission. 5. Use proper referencing and citation formats where applicable CASE STUDY MRS. LEE Background information Mrs. Lee, who is in her late 40s, is a senior manager working for a multi-national corporation with USD 12 billion in global sales. She has a son aged 20 who, in 4 months time after completing his National Service, will be enrolling in a medical programme of a reputable Australian university for the next 4 years (annual expenses including fees, lodging and miscellaneous items for a Melbourne based university education can be assumed to be SGD 65,000 per annum). Her husband, a professional engineer, has passed away about 2 years ago from a heart failure and the insurance proceeds have just been paid out. Current situation Due to the very difficult structural challenges faced by the parent firm in the US and in the light of the slow industry recovery from the COVIC-19 pandemic. Mrs. Lee's job has been made redundant. As part of her retrenchment benefits, Mrs. Lee has been paid a lump sum gratuity of SGD 500,000 due to her long years of service. In addition, she also managed to sell all her share options in the firm and received proceeds amounting to SGD 300,000 Together with the family savings of SGD 250,000 which she had intended for use on a rainy day and the death benefits from the insurance pay out of SGD 750,000 from the life policy. Mrs. Lee reckons she now has investible funds totalling SGD 1.8 million in cash to meet her various needs. Your role As a student of GSP 177e Fundamentals of Investing and based on what you have studied thus far, your role here is to provide advice to Mrs. Lee on how to invest her surplus finds Investment proposals Over the past 2 months, Mrs. Lee has been meeting with various financial professionals with a view of investing her funds wisely. Specifically, she has narrowed down and is attracted to the proposals made by the following executives: 1. Ms. KWA, who is the Executive Director of PANDAMIC Energy Resources Pte. Ltd. (*PERPL'), a privately held firm specialising in energy investments, distribution and marketing, suggests that Mrs. Lee sets aside finds to invest with her firm According to Ms. Kwa, the expected returns amount to 2% every 3 months on the total funds invested. As an illustration, clients who invested SGD 100,000 at the beginning of each quarter (the fixed dates are 1 January, 1 April, 1 July and 1 October) will get their original investment amount of SGD 100,000 together with the return of SGD 2.000 at the end of the respective quarter (31 March, 30 June, 30 September and 31 December). If only the principal funds were rolled over every quarter on an annual basis, clients could potentially obtain SGD 8,000 in returns over a 12 month period. At the end of each period of investment, the principal sums invested and the retums are paid back to the investors so that they could decide whether or not to continue investing and if so for whatever amounts in the following and subsequent quarters. Ms. Kwa recommends that Mrs. Lee invests with her firm an amount of at least SGD 800,000 for a minimum period of 4 years so that the burden of finding her son's entire education can be taken care of. She further emplasizes that the investment duration with her fimm is relatively short term in nature. Hence, there is no need for her to be overly concemed about its liquidity. Moreover, there is no compulsion for her to continuously invest every quarter as she can get out at the end of each investment period if she needs the funds and can re-invest whatever amounts again in the subsequent quarters or not at all Just a week ago, Mrs Lee attended an exclusive private presentation held by PERPL through a ZOOM meeting at the invitation of Ms. Kwa where she leamed of the following: a. The minimum amount to invest was an affordable SGD 50.000. Most of Ms. Kwa's clients had invested amounts ranging from at least SGD 500,000 to SGD 2 million each over the past 6 years ever since she joined in 2015. These clients preferred such investments due to the relatively short duration, considering that each investment period is only 3 months, unlike other investment products which might require longer periods of commitment with much less certainty of retums. b. As explained by the Managing Director of PERPL (Ms. Kwa's boss), the invested funds from clients were being held in trust and secured through first charges or "lien" on specific oil fields and gas reservation sites belonging to the firm located in the well-known shale oil area of Dakota in the US. Such investments were fully secured and duly documented. In addition, the oil and gas reserves were properly certified by experts investors could view at PERPL's Marina Bay Suite office the various documents which had been duly prepared and certified by lawyers who were experts in this area). In this mamet, an investor could be assured of getting his or her returns as the whole investment process would be properly documented and be above board c. PERPL had very well established track records, having tied up with professional middlemen and other connections with the oil majors that allowed it to pre-sell oil and gas reserves to achieve the desired retums. Since oil prices had been stabilised only recently, the future prospects for the industry and for the firm in particular, had never looked better. Hence, investors were assured of the safety features of their investments with the firm. d. The Managing Director of PERPL gave an assurance to the limited capacity audience (due to COVIC restrictions and safety measures in place) that there were no currency risks for investors since the returns and the funds being invested would be denominated and paid back in SGD. Similarly, investors would not face any risks or uncertainties in the oil and gas markets as the proven energy reserves have been pre- sold through secured contracts. e. A couple of investors with prior experience of investing with PERPL went on record at the ZOOM meeting to give first-hand testimonials and shared their investment experiences. They had gone on fact-finding field trips to the actual project sites in Dakota to witness for themselves the development of the projects they had previously invested in prior to the world-wide outbreak of the COVIC-19 pandemic. These investors had successfully obtained the returns as promised as well as their invested principal amounts. Of course, these satisfied investors indicated to the audience in the meeting their intentions to make further investments with the firm. As Ms. Kwa was aware of Mrs. Lee's financial situation, she told her that if she were to invest diligently and sufficiently through her recommendation, her son's education funding needs and her own financial requirements could be more than adequately taken care of. In view of the above and considering that Mrs. Lee has known and trusted Ms. Kwa for more than 25 years (Mr. and Mrs. Lee have bought their existing house through Ms. Kwa when the latter was a property agent and had remained in contact ever since). she (Mrs. Lee) was keen to take up this proposal to meet her financial goals. 2. Mr. Heng. Senior Managing Director in the Private Wealth Management Division of VAXXINE Bank Ltd. (its listed name is "VBL on an overseas stock exchange). proposes that Mrs. Lee places her available finds with VBL in a discretionary investment management account so that it can grow at an average of 3 -12% p.a. this was based on the audited track records of the bank's performance for similarly managed investment portfolios over the last 35 years). At a previous meeting with Mrs. Lee held a fortnight ago, Mr. Heng had explained the workings of a discretionary investment account as one in which the investments were specifically tailored, managed and segregated by VBL for each individual investor While the team of economic, stocks and investment experts at VBL would make all the necessary investment management decisions such as asset allocation, which stocks or bonds to invest in and provide detailed records and statements with regular reviews, there could be occasions when the clients as investors could give specific instructions to override the investment decisions, liquidate the securities, withdraw partially or even terminate the account depending on the circumstances by giving due notice. In other words, a discretionary account is one where the bank (VBL) is given a mandate by the client to make investment decisions on his or her behalf and at the same time the client himself or herself can have full control over his or her funds. As proposed by Mr. Heng, the funds to be managed by VBL for Mrs. Lee will be invested in a diversified portfolio that comprised traditional asset classes. After 2 further meetings with Mrs. Lee, Mr. Heng recommends the weightings of the portfolio for Mrs. Lee to be comprised of local stocks (50%), cash deposits and foreign currencies (10%), bonds (10%) and foreign stocks including the US and EU (30%). Even though VBL will have full discretionary power to manage the investments on her behalf as it saw fit. Mr. Heng repeatedly assured Mrs. Lee that the individual asset class weightings could be altered to suit her needs. Any of her specific requests such as her desire not to invest in say, casino, gaming, tobacco or liquor stocks can be accommodated if these and any other requests are made known in advance to VBL The minimum amount accepted by VBL for such a discretionary investment account or service is SGD 1 million with no cap on the maximum that it could manage for clients. Assumptions The house in the Goodman Road vicinity in the East that Mrs. Lee and her family currently lived in is fully paid for. She has more than adequate insurance policies to cover her entire family for medical and long term disability and premature death benefits as various policies were purchased years ago when she and her husband first started working. Therefore, it can be assumed that insurance coverage will not be considered by Mrs. Lee in her current investment decision deliberations. Given the circumstances, it is unlikely that Mrs. Lee will be able to find a similarly well-paying job like her last one for the foreseeable future. For the purpose of this case study, please bear in mind the following: 1. Other than the above investment proposals, Mrs. Lee does not wish to consider evaluating or investing directly by herself in properties, annuities, listed equities, bonds, REITs and mutual funds (unit trists) OR with other insurance companies, banks, brokers, investment houses, independent financial advisers OR through online and intemet accounts. 2. For the sake of simplicity, please do not consider bank fees or charges, discretionary investment account management fees, brokerages, stamp duties, commissions and charges, capital gains taxes and income taxes in Mrs. Lee's investment decision- making process. 3. As for the economic environment in Singapore, you can assume that the interest rate for short to medium term bank deposits is 0-1% pa, while the annual inflation rate in Singapore is in the region of 2 -3%p.a. 4. Please do not take into account her CPF balances and their effects on Mrs. Lee as she intends to leave her CPF account intact. Assignment Based on your understanding of the investment tools and concepts that you have learned thus far, identify, examine and illustrate how you can use the same tools and concepts to advise Mrs. Lee on allocating and utilising her investible funds of SGD 1.8 million Describe and discuss your recommendation(s) (in 800 - 1,000 words) by analysing with whom and how Mrs. Lee should or should not invest the cash she has on hand given her situation. Compare and appraise the relative merits, demerits and risks involved and appraise the potential outcomes if Mrs. Lee were to take up all your recommendations. You can also synthesise and give additional suggestion(s) and or alternative(s) where appropriate (after giving due consideration to the various assumptions and constraints outlined above and below) all of which must be duly supported by sound and detailed arguments. Additional Guidance Notes For Students 1. In presenting your recommendation(s) to Mrs. Lee, state the relevant steps involved in arriving at such a conclusion(s). This should include providing details of your analysis in determining Mrs. Lee's various needs, requirements and objectives and how your recommendation(s) meet these criteria. 2. Demonstrate your inderstanding of the investment concepts and tools that you have leamt (refer to your course Study Guide) in preparing your reconumendation(s) with sound reasons and explanations. Consider the following in your write-up: a. Have you conducted a thorough evaluation of Mrs. Lee's investment circumstances and requirements regarding her investor profile, stage of life cycle investing, liquidity needs, risk tolerance, time frame for investing etc. before deciding what her investment objectives and requirements shall be? What products or proposals and asset allocation models will be most appropriate for her given her situation based on your analysis? (Please note that mere listing or repeating of Mrs. Lee's circumstances as provided in the case is NOT the same as profiling. Profiling requires you to anahise and come to conclusions that for her requirements regarding investment objectives, risk tolerance, time horson for investing, liquidity needs, etc. that in turn will help determine products, products and asset allocation model that meet her needs.) b. Have you carried out a proper analysis of the proposals and considered the various risk factors or possible alterations in terms of asset allocation and diversification to meet Mrs Lee's needs as previously analysed by you under 2.a. above? Have you considered the business environment, legal and regulatory framework in your recommendations for Mis. Lee in her investment decision making process, topics which you have covered under your self-study? c. Have you prepared your recommendations based on your understanding and analysis and showed Mrs. Lee the potential results or consequences of your suggestion(s)? d What potential issues of problems would Mrs. Lee face if she were to accept your recommendations? Are there any other mitigating factors or actions that Mrs. Lee can consider or take to reduce the uncertainties of risks if she were to fully accept your recommendations? 3. Include additional assumptions which are reasonable and appropriate if these help you to further enhance and make sense of your advice to Mrs. Lee. (Any assumptions made which are not directly given in the case study itself should be relevant, reasonable and properly explained.) 4. Use graphs, charts and tables, etc. where appropriate to clearly illustrate the various points in your presentation. Bear in mind that such graphical representations not only save on the words you use but also could be an efficient and effective means of communicating your ideas to Mrs. Lee provided that they are relevant, up to date, and have clear notations and explanations. You need to relate and provide simple explanations to Mrs. Lee all your charts and graphical representations in your submission. 5. Use proper referencing and citation formats where applicable