Wise to the ways of the east: a risk manager's inability to recognize the subtleties of manner and words in Asian cultures can torpedo the best business relationship and cost his or her company plenty of money

From his post as the top risk manager of a sprawling Singapore holding company that includes familiar names like Singapore Airlines and Neptune Orient Lines, David R Belmont faces many of the same trials and tribulations as his fellow risk managers half a world away in the United States.

Sometimes he finds himself at odds with line managers who demand the most freedom possible to generate returns in risky business ventures. On the other hand, he enjoys the increased visibility and access that risk managers around the globe now frequently gain to boardrooms and chief executive officers. As a managing director and head of risk management at Temasek Holdings for the past five months, Belmont reports directly to the high-powered board of this giant investment holding company whose majority owner is the Singapore government's Ministry of Finance.

But as an American who has been managing corporate risks in Asia for the past seven years, Belmont has had to hone at least one other capability that his colleagues working back home have not had to worry about--learning to understand the cultural nuances in a large and diverse region that reaches from southern India to northern China.

"You have to learn to interpret what you read, what people say and the market movements all through the relevant cultural lenses," says the 38-year-old Connecticut native. "When a Thai banker who owes you $10 million smiles when you ask him how the devaluation of the Thai baht has affected his bank, and then proceeds to tell you that he is unaffected, you have to be able to interpret correctly.

"Thailand is known as the 'Land of Smiles' and each smile has a different meaning."

And a risk manager's inability to recognize the subtleties of manner and words in Asian cultures can torpedo the best business relationship and cost his or her company plenty of money.

"When an Indian finance company executive who is late in paying an obligation to you says that he will definitely pay you next week and gives his word of honor, your next step better be the courthouse," adds Belmont. "If he brings an injunction against you before you can bring an injunction against him, you will be waiting a long time to see your money."

Another difference in Belmont's day as a risk manager operating in Asia is keeping abreast of political risks and the more cyclical boom-and-bust cycles of the developing world. While running a company in Singapore itself is similar to managing risk in other international capitals like Paris or London, Temasek does have stakes in companies that operate in more volatile regions.

"There are the concerns about smoldering conflicts in Taiwan-China, India-Pakistan, the Koreas and the potential Balkanization of Indonesia," says Belmont, whose childhood in a military family living abroad helped spark his affinity for foreign cultures. "How these conflicts might affect the markets is a constant area for stress and scenario testing. There are also some concerns about physical security as well--especially as Temasek seeks out opportunities further afield."

"Most of the markets in Asia are still developing," he also says. "They will have cyclical boom-bust cycles more pronounced than those in the OECD (Organization for Economic Co-operation and Development), for example. The legal frameworks are often incomplete and anti-foreigner--more volatility and less liquidity."

Belmont, who earned his undergraduate degree in 1988 from Bowdoin College, is also a 1992 graduate of Yale University.

Belmont, who holds a master's of business administration and a master's of science in international relations from Yale, was attracted to the financial world by its international lifestyle. But his initial days as a trader were limited as he was essentially pushed into the risk management field by a supervisor more than a decade ago.

"I didn't lose a lot of money--but I was not as successful in finance as others," says Belmont of his days as a trader for a hedge fund managed by Cargill Inc. "You need a certain disposition as a trader to take risks and I was a more prudent personality. So a former boss essentially forced me into it (risk management.) Then I found it was a good fit for me."

Now, 14 years later, Belmont is managing risk for Temasek, a large Asian investment holding company that is somewhat similar in structure to an investment company like Berkshire Hathaway Inc. in the United States.

Founded about 30 years ago to hold the Singapore government's investments in various businesses, Temasek today is an active shareholder in a variety of industries that range from transportation to finance to infrastructure. Temasek has interests in blue-chip companies--including Singapore Airlines, DBS Bank and Neptune Orient Lines--that have a total market value of about $55 billion, according to the company's Web site. The company also has holdings in companies not listed on public exchanges, such as Singapore Technologies, Singapore Power, PSA Corp, and other industrial groups.

And Belmont's primary goal as Temasek's top risk manager is to help the company obtain the highest return for its shareholders.

"Value creation is the mantra of Temasek," says Belmont, a chartered financial analyst and member of the International Association of Financial Engineers. "We focus on the way capital is allocated in the organization--looking at new potential investments and what should be divested."

Belmont says he thinks only about 10 percent of financial institutions--which are in the business of taking and managing risk to generate returns for their shareholders--are using risk management techniques to maximize shareholder value. He was so sure that risk management can be a source of greater shareholder value that for two years he dedicated his mornings and weekends to writing a book about the topic. "I was passionate about the idea that risk management is a source of shareholder value," says Belmont. "There was no book on the market that explained how and I wanted to write a book that clearly explained how risk management can directly impact a firm's share price and cost of debt. I wanted to have it be detailed and rigorous since no one had shown how it was done before."

Titled "Value Added Risk Management in Financial Institutions," the book looks at how risk management no longer needs to follow a traditional system focusing on loss avoidance. Instead, writes Belmont, risk managers at financial institutions should be using an array of statistical, mathematical and financial techniques to increase shareholder returns on their economic capital.

Belmont is now applying these principals every day at Temasek headquarters in Singapore during workdays that can typically run up to 12 hours and include frequent travel throughout Asia.

"We have Blackberries so there is no real start and stop. There are quiet times when you can basically ignore the messages for a while and then there are times when you have to look at it every five minutes," he adds. What he enjoys most about his job is being able to add value to the company. "This is something unique about Temasek in that they really see risk management as a source of value for the organization," adds the married father of two children. "The constant change in the business and building a risk management function that is appropriate for our business and strategy are also very satisfying."

COPYRIGHT 2004 Axon Group
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