CASE STUDY – MR. PANG DAE MEK

Background information

Mr. Pang Dae Mek (Mr. Pang), who has just turned 60, is a senior executive working for a multi-national corporation with SGD 12 billion in annual global sales just before the onset of the COVID-19 global pandemic. He has a son aged 19 who recently reported for National Service and a daughter aged 14 studying in a local secondary school.

His son has applied for and has been accepted into a prestigious Australian university. He estimates that when the global pandemic settles down in 2 years’ time and his son’s National Service is over, he will need to pay for his son’s university education at a cost of SGD 60,000 p.a. for the following 3 years.

In another 4 years, it will be his daughter who is likely to enroll for a 3-year course at a local university where course fees and expenses can amount to about SGD 20,000 a year. At present, his wife is working full time as an IT professional. In spite of their long service records with their respective companies, there is no assurance that he and his wife can continue to hold on to their jobs in view of the severe economic downturn going forward.

Current situation

Just before the most recent “circuit breaker” clampdown by the government, Mr. Pang received a total of 3 lump sum distributions amounting to SGD 1.0 million from the estate of his recently deceased father. Together with the immediate availability of CPF (Central Provident Funds) savings amounting to SGD 450,000 and his family savings of SGD 350,000, Mr. Pang reckons that he now has cash funds totaling SGD 1.8 million on hand to invest prudently to meet his various needs.

Investment proposals

Despite the lack of opportunities to meet in person, Mr. Pang has been busy communicating with executives from various financial and investment firms through video sharing and conferencing as well as using WhatsApp chats and emails. Given the current very low-interest-rate environment, Mr. Pang intends to deploy and invest his available funds instead of placing them with banks as time deposits. Specifically, he has narrowed down his choice to the following 2 proposals:

PROPOSAL ‘A’

Ms. Koh, Senior Managing Director in the Private Wealth Banking Department of Hanwu Wealth Bank Ltd. (its listed symbol on an overseas stock exchange is ‘HWBL’ and is referred to hereafter as the “Bank”), proposes that Mr. Pang places his available funds with the Bank in a discretionary investment management account that can grow steadily at an average of 3-12% p.a. (the figures provided are based on the audited track records of the Bank for such similarly managed discretionary accounts over the past 50 years since 1969, while the latest figures for the most recent year, 2020, are not yet available).

PROPOSAL ‘B’

Mr. Vic, who is the Senior Group Marketing Director of Paramount Global Resources Pte. Ltd. (‘PGR’), a privately held firm specializing in energy investments, distribution, and marketing, suggests that Mr. Pang set aside funds to invest with his firm. According to Mr. Vic, the expected returns amount to 3% every 3 months on the total funds invested. As an illustration, clients who invest 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 3,000 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 12,000 in returns over a 12-month period. At the end of each period of investment, the principal sums invested and the returns are paid back to the investors so that they can decide whether or not to continue investing and, if so, for whatever amounts in the following and subsequent quarters.

Assignment Question:

Based on your understanding of the investment tools and concepts that you have learned about thus far, examine and illustrate how you can use the same tools and concepts to advise Mr. Pang on allocating and utilizing his investible funds of SGD 1.8 million.

Describe and discuss your recommendation(s) (in 800 – 1,000 words) by analyzing with whom and how Mr. Pang should or should not invest the cash he has on hand given his situation. Compare the relative merits, demerits, and risks involved and appraise the potential outcomes if Mr. Pang were to take up all your recommendations. You can also synthesize 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.