In 2002, when Donald Rumsfeld, the US Secretary of Defense, spoke of ‘unknown unknowns’ regarding Iraq’s weapons of mass destruction, he was ridiculed in some quarters for speaking in garbled gobbledygook. He even earned a Foot in Mouth Award by the UK’s Plain English Campaign. Others, however, such as psychologists, national security analysts, and riskmanagement professionals, had an appreciation for what he said. “There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know,” Rumsfeld said. To some, this might sound like nonsense, but to others it brings clarity and is a profound way of framing the challenges of risk management.
Over the course of his career, Wee Teck Lim has dealt with known knowns, the unknown ones, and is mindful that the unknown unknowns can wreak havoc on even the best financial forecasts. Lim’s skills lie in analysing, forecasting and advising, which he has done in various environments through his career, which has sharpened his approach to risk management. He studied economics and mathematics at the National University of Singapore and, after graduating, he pursued a career in public service, using his numeracy skills in a government statistical research department. This role, however, didn’t suit Lim and he felt the time was ripe to point his career in a different direction. “I was interested in banking and finance, and I was still young – in my early 20s – so I moved to a banking job where I learned about foreign exchange [FX] and cash management,” he explains.
This job at a Japanese bank as a treasury dealer for financial institutions and corporate clients gave him his first taste of the treasury world. During this time, he became acutely aware of the importance of effective risk management.
From there Lim moved to a Singaporean bank and was an investment counsellor and relationship manager and provided investment advice to highnetworth clients in FX, fixed income and equities. He worked hard, and during this time he successfully acquired 100 new accounts in three months with total assets under management of SG$30m. He then moved to another Japanese bank and became a treasury trader, advising and executing FX spot, FX options, interest rate derivatives and money market instruments for major multinational corporations and regional banks. One of the accomplishments he is most proud of is achieving SG$1.5m profit and US$1.4bn volume in a single year.
An evolving career
Lim’s career shifted gears when he moved to a family office and investment company that was founded by one of Asia’s most well-known banking magnates. The family office has numerous interests, which includes being a major shareholder in a Singaporean bank as well as various investments in public and private equity, venture capital, hedge funds and fixed income credit.
Although there is a clear banking connection in this firm – with its founder also being the founder of a major bank in Asia – the overarching objectives for Lim in this role were quite different when he worked in a bank. For the family office, his main responsibilities were to provide specialist input on technical analysis for the firm’s investments, managing and hedging the firm’s equity, FX and fixed income investments. He also selected and oversaw hedge funds and other daily fixed income funds. Additionally, he ensured there was ample liquidity for the foundation’s activities and its subsidiaries’ businesses. In addition, he monitored the FX and equity markets on a daily basis and traded within risk limits.
The emphasis in Lim’s family office role was different from what he has since experienced working for multinational corporations. Being in a treasury role, where major decisions can ultimately affect the survival of an organisation carries a weight of responsibility. Did Lim feel this burden – or stress – with this kind of responsibility working for the family office? Is it more or less stress working for a corporate?!
“The stress levels and expectations are different with a family office – you do not want to be the one responsible for losing the family’s wealth,” Lim says. He explains that the major key performance indicator (KPI) is on beating inflation and ensuring future generations can preserve and continue to use the family’s wealth. In a corporate, he says, the emphasis is typically different and there would be a larger risk department to manage various risks. Still, there is a stress – and responsibility – that comes with corporate treasury roles. A misjudged hedge, for example, could leave a company massively exposed. Or a treasurer’s FX decisions could lose the company millions, which could then impact the share price, Lim comments. While no one wants to be the one to lose a family’s wealth, by the same token, no one wants to be the one to put a corporate out of business.
Lim crossed over to working for corporates when an opportunity came his way. After working for the family office since 2007, many years later, in 2016, he made his first foray into corporate treasury. He became a senior manager in FX, liquidity and fund management at a major Singaporean engineering firm and managed their alternative investments as well as their cash. From his previous family office role, he was well-versed in managing alternatives, which was experience the engineering firm found attractive. After five years in this first treasury job, Lim has pursued other corporate treasury roles and has remained in the industrial sector.
Reflections on risk
Now that he is working in a corporate environment, Lim has a chance to reflect on the different approaches to managing risk. When asked about the main lesson he has learned through his 20-year career – in working for banks, a family office, and multinational corporations – he says the main learning is related to risk management. “The main lesson I have learned is not to take risks unnecessarily – whether that is in the treasury department of a bank, or dealing with highnetworth clients or a family office – and it is never a good idea to put money in one basket. Being risk averse is something that is good for my day-to-day responsibilities,” Lim tells Treasury Today Asia.
When it comes to being risk averse and being sensible with diversification, there is still the possibility that Donald Rumsfeld’s unknown unknowns can cause a problem. Even though investors think they are diversifying, they could actually all be investing into the same underlying risks. During the global financial crisis, for example, credit default swaps seemed like a good way to insure against defaults, but there was concentrated risk in the market because AIG was the major provider of the swaps and underwriting the market. When they ran into trouble, the problems were systemic. How, then, does Lim ensure he has his eyes, ears and mind open to the possibility that there are risks emerging he doesn’t know about? What about ‘Black Swan’ events – which were made famous by the theory of economist Nassim Nicholas Taleb who argued that rare and unpredictable events can have a disproportionate impact. Conventional methods cannot often see such events coming, even though hindsight can often rationalise and explain them.
The stress levels and expectations are different with a family office – you do not want to be the one responsible for losing the family’s wealth.
“I survived the global financial crisis and was quite lucky because we had invested in a fund that was dealing with US mortgages,” Lim comments. One lesson he learned, he says, is that what is deemed ‘safe’ may not actually be safe if everyone decides to sell at the same time. Given the main motivation of a wealthy family is to preserve wealth, and to be prudent and risk-averse, working in this environment means there is a different kind of sensitivity to when the markets are turning for the worse. “My family office background has stood me in good stead because I have been exposed to different indicators about what the tell-tale signs of problems are,” he says.
This kind of perspective is different from other corporate treasurers who typically come from an accounting and finance background, where the focus is on bookkeeping and the balance sheet. When these corporate treasurers hedge their foreign exchange exposure, Lim says, they typically rely on banks to do this for them. The problem with this approach, however, is the banks’ motivations may differ from the corporates’, and they may not always know when a suggested approach is more in the banks’ interests than their own. Given his background, Lim is able to bring a different mindset to the table when assessing a bank’s products and solutions and will often challenge the bank with a confident argument.
Keeping an eye on geopolitical risk
Now, in his current role as a senior treasury manager at a shipping and logistics company, Lim’s priorities are in bringing improvements to how the treasury is run. One of his aims is to centralise the treasury, which is something he has worked on in his previous roles. Lim is also looking to digitalise the treasury, enhance the use of the treasury management system and automate the reporting as much as possible. Many treasuries, he comments, still rely on manual processes and it is not uncommon to see companies in Singapore still relying on Excel. “In one sense it’s a good thing because it gives everyone lots of work to do,” he jokes.
In his current role, there are many factors he needs to monitor because of the nature of the industry in which he is working. Geopolitical risk is a major risk he needs to have a handle on. With tensions in the Middle East, for example, any rise in the price of crude oil has an enormous impact on shipping costs. Meanwhile, the multinational needs to ensure any price increases to its customers are not too dramatic – otherwise they risk losing their business altogether. “Things can be quite volatile,” says Lim of the current geopolitical environment.
With navigating such situations, it is necessary for various teams within a corporate to communicate effectively; no department can operate in a silo when deciding the best course of action with rising costs and prices. For this reason, says Lim, he has a close working relationship with the finance team as well as each of the business leaders of the company. One advantage of the nature of his industry, however, is that the pricing is done in advance based on the macroeconomic outlook at the beginning of the year, and the company’s contracts have a relatively long timeframe. In this sense, the uncertainty in the markets doesn’t have an immediate impact in the same way it would for a fast-moving consumer goods company, for example, which is always having to manage inventory – and the associated costs and pricing – on a shorter cycle.
From the treasury team, Lim is exposed to all aspects of his company and gets a front-row seat as major events unfold because of the strategic importance of the treasury function. Lim says he likes working in treasury because it is related to so many topics, and they can vary every day. “It’s a good career to be in,” he comments. “Corporate treasury is quite dynamic and can be quite different depending on the industry you are in – that’s why I find it interesting,” he adds.
Other interests and role models
When Lim isn’t working in treasury, one of his interests is English Premier League, and he is a keen supporter of Liverpool football club, which has provided him with opportunities to reflect on his role models and the nature of leadership. In a recent post on LinkedIn, Lim referred to the announcement in January that Jorgen Klopp – the manager of Liverpool FC – would be retiring at the end of the season. Klopp has been widely lauded for building a team culture, treating people with respect, and effectively delegating. His departure after nine years comes at a good time and allows him to leave on a high. Lim has taken some lessons from this, which can also apply to his professional life. “His departure also shows one thing: nothing is permanent and if it is time to move on, leave with your head high and never burn bridges,” he wrote in a LinkedIn post.
Building for the future
For now, Lim has his work cut out digitalising the treasury at his current company and moving it to real-time so the team can have up-to-date visibility of its cash positions. As is common with many others in the treasury community, Lim sees artificial intelligence (AI) as a major trend that will be useful for forecasting cash flow as well as the macro environment. “AI is here to stay and will go a long way in enabling us to do things we cannot do at the moment,” says Lim. There are risks with relying on AI, and they pose myriad challenges to risk management professionals. However, Lim isn’t getting carried away with his vision of how AI will be used. “You still need someone to stress test the results that AI has given you – you need to take it with a pinch of salt,” he says. With AI on the horizon and set to become a mainstay of working treasurers’ lives, it is good to know that Lim will still be keeping an eye on the known knowns, the known unknowns – and the unknown unknowns.
