SPARE a thought for Tan Sri Azman Mokhtar, managing director of Khazanah Nasional, the government investment fund (GIF) of Malaysia, and Datuk Shahril Ridza Ridzuan, chief executive officer (CEO) of the Employees Provident Fund (EPF), Malaysia’s state-run social security fund — the country’s two premier public investment funds (PIFs).
While others spend their time getting on with the day-to-day business of honing their investments and maximising their returns on behalf of taxpayers and members as per their mandates, Azman and Shahril have to contend with a constant barrage of politically-motivated fake news and misinformation about their asset allocation and investment strategies.
Given the nature of Malaysian politics and the looming 14th General Election, this might be construed as par for the course and that parties are within their rights to raise questions about the management of the country’s PIFs, of which Lembaga Tabung Haji (Pilgrims Management Fund) and PNB (Permodalan Nasional Bhd) are two notable additional ones.
Judging from the recent campaign of rumours, gossip and misinformation conducted on cyberspace, especially on WhatsApp, Twitter and in some parts of the media, PIFs are forced to spend valuable time reacting to the above instead of getting on with the job of enhancing the retirement wealth of citizens and the nation. As if the detractors of Khazanah and EPF are instructing them on developing investment strategy on the hoof through a running commentary.
In last month alone, in the wake of Prime Minister Datuk Seri Najib Razak’s visit to the United States and the United Kingdom, Khazanah and EPF were reduced to defending their overseas investments, especially in the US and the UK.
“Khazanah practises a strict process of origination and evaluation of investment proposals, involving detailed due diligence and multiple investment gates, before submission to the Khazanah board of directors for consideration and approval. In line with our mandate as a strategic investment fund that creates long-term value for Malaysia via multiple sectors and geographies, Khazanah will continue to explore investment opportunities in the US,” said Khazanah in a statement.
Simlarly, EPF had to refute base allegations that it was buying airplanes for Malaysia Airlines from Boeing; that it was linked to Bank Negara Malaysia foreign exchange losses 26 years ago, and that it can only disburse funds to members until the age of 75, when this was extended to 100 years a few years ago.
Khazanah and EPF have strong corporate governance and internal compliance structures in place that rank high in terms of international standards. Khazanah, for instance, according to the US-based Sovereign Wealth Fund (SWF) Institute, has US$34.9 (RM147.6) billion of assets under management (AUM) at the end August. It is one of the most transparent GIFs, scoring nine out of a best of 10 in the Institute’s Linaburg-Maduell Transparency Index.
The PIF transparency standard is set by Norway’s Government Pension Fund (GNPF) with a perfect score of 10, which on Sept 19 announced that its AUM had hit the US$1 trillion mark the first by any SWF to date. The GNPF’s asset allocation and investment strategy arguably is the most stringent, transparent and inclusive of all PIFs. It also meets the most demanding ethical and socially responsible investment (SRI) standards monitored by an independent Council of Ethics appointed by the Finance Ministry, which requires by law corporate disclosure on social issues including children’s rights, climate change and water management of companies the fund is seeking to invest in. The fund also has an exclusion list of companies deemed unfit to invest in and others placed on an observation list.
This is akin to Khazanah and EPF’s Shariah Advisory Councils, albeit for the Shariah-compliant component of their investment universe. In the case of EPF, which at the end of last year had total investments under its management of RM731.11 billion, it is as high as 45 per cent with the aim of increasing it further, following the launch in January of its RM100 billion dedicated Islamic pension fund, Simpanan Nasional — the first in the world — and which is set to increase to RM150 billion next year.
Khazanah is a pioneer of SRI Sukuk having issued two tranches under its RM1 billion SRI Sukuk Issuance Programme, the last of which was in August and which supports the government’s Yayasan AMIR Trust School Programme.
“I don’t think anyone expected the fund to ever reach US$1 trillion when the first transfer of oil revenue was made in May 1996. Reaching US$1 trillion is a milestone, and the growth in the fund’s market value has been stunning,” said Yngve Slyngstad, CEO of Norges Bank Investment Management, the investment manager of GNPF.
The GNPF is the outstanding PIF to emulate. There are indeed uncanny similarities in the asset allocation and investment management strategies of GNPF, Khazanah and EPF.
GNPF is an active investor and has five overseas offices and invests in assets all over the world, albeit a majority are in Norway and Scandinavia, and the geographic diversity of its portfolio includes investment in the US, UK, Europe and Asia.
Yes, investment decisions can go wrong because of market vagaries, risk management strategies and internal governance decisions. No asset manager, even Warren Buffet, can offer constant positive returns. This is the nature of the beast. As long as there are strong and transparent remedial, recourse and accountability mechanisms in place, which there are in Khazanah and EPF, I don’t know what the fuss is about.
On the whole, Khazanah, EPF, Tabung Haji and PNB have eminently delivered on their mandates. There is always room for improvement. Khazanah and EPF should consider cooperation with GNPF through co-investment. They already do so with counterparts in Australia and the Gulf. A few years ago, the French SWF Le Fonds stratégique d’investissement, which is managed by Caisse des Depots International Capital, similarly suggested closer co-investment cooperation with PIFs in Organisation of Islamic Cooperation countries, especially in Islamic investment.
As for those who play politics with the likes of Khazanah, EPF and Tabung Haji, my message is simple: Stop it. It is bad for Malaysia Inc and it is beyond the pale!
Mushtak Parker is an independent London-based economist and writer. He can be reached via mushtakparker@yahoo.co.uk