Dear Members, “I can resist everything except temptation”, “Common sense is not all that common” and “The skills required to get a job often have nothing to do with what is required to do the job itself.” These three quotes should come to mind when we think about the stewardship of RSGC’s cash pile. We are the custodians of close on 400m of investments and another 6m in cash.
Stewardship is leaving a system better than you found it. When we wrote RSGC’s investment guidelines in 2018, we moved from a less defined and more subjective decision process to a highly prescriptive set of rules to remove subjectivity, conflicts of interest and to counter temptation and incompetence. Some think our guidelines to overly complex and technical but our contention has always been that if you cannot fully comprehend the contents then you have no business being involved in managing that RM400+m.
For members who are not aware, RSGC’s guidelines prioritizes security, liquidity, and diversification. Regardless, no investments are prohibited if so approved by members at general meetings. In the absence of such approval, it permits investments only in Ringgit-denominated bank deposits, government bonds, approved money market and fixed-income funds. Investments in equities, foreign exchange, private equity, hedge funds, or derivatives are prohibited.
The Guideline enforces strict credit and concentration risk management limiting funds invested with a single fund manager and in any financial group. Exposure to specific funds is also capped at a % of the fund’s assets under management (AUM). Leverage and structured products are not permitted. There are also limits for custody and trusteeship of AUM.
Luckily for us, our Finance Convenors, Presidents, Captains and Committee Members have been nothing but upright guardians acting as honest and competent fiduciaries. They have even added additional checks on how we deal with our land portfolio and how we manage our procurement process. To further safeguard our assets, we just put in place a Sub Committee to ensure that we have a complete Regulatory inventory and that we are aware of all such laws, regulations and guidelines that apply to RSGC to avoid sanctions for non-compliance, particularly on our real estate.
Are we sufficiently protecting our funds from an erosion of purchasing power? After all, the key arbiter of purchasing power, Gold has appreciated 50+ times in 50 years against the Ringgit compounding at over 8% annually whilst we return between only 3% and 4% after taxes. My view is that RSGC has the right mix of cash equivalents and hard assets. The club’s position is well buffered by our portfolio of non-golfing land. Whether members view our lands as Investment assets that can be utilized in the future to support our finances is a totally separate issue. The fact is, it is there, circa 27 acres of prime real estate although the new guidelines under Companies Act 2016 has made the holding, leasing ,selling and buying of land by Companies Limited by Guarantee subject to governmental licensing and permissioning. Further inflation hedging is also being achieved by fast tracking needed or desired club infrastructure.
I believe our Investment Guidelines remain fit for purpose. They do not seek to solely maximise returns but are instead optimised to suit the club’s governance structure. The three quotes in the first paragraph accurately describe what we could face and our Guidelines are a bulwark against that possibility, or more likely, eventuality. If I had to put it in investment speak, the probabilistic expected losses of a more aggressive investment policy from future malfeasance, conflicts, dereliction, negligence, incompetence or just bad luck is likely higher than the expected additional returns of allowing more discretion or a higher level of risk. Our guidelines have worked well even through the Covid volatility. If it ain’t broke, don’t fix it.
Raymond Yeoh
Captain
