KUALA LUMPUR: Malaysia’s second largest retirement fund, Kumpulan Wang Persaraan (Diperbadankan), or Retirement Fund Inc (KWAP), is diversifying its investments this year to achieve better returns from its RM129.9 billion total assets.
This may include buying properties in new European markets, investing in United States equity markets and diversifying within the fund’s existing asset classes, chief executive officer Datuk Wan Kamaruzaman Wan Ahmad said.
In an interview with the New Straits Times and Berita Harian, he said KWAP targets to achieve investment returns of 5.5 per cent this year, compared with 5.33 per cent (unaudited) achieved in 2016.
“The year before (2015), the returns were 5.41 per cent. We expected it to be lower because the market was difficult. The board is very happy with 5.33 per cent. I think the performance is reasonable and quite good,” said Wan Kamaruzaman, who was appointed CEO on May 2, 2013.
KWAP, which oversees the payment of monthly pensions to 650,000 civil service pensioners, currently invests the bulk of its assets locally (88.4 per cent), compared with 11.6 per cent overseas. The target is to increase the portion of overseas investments to 19 per cent by 2020.
“We want returns of more than five per cent... Only overseas investments can help. And especially with the weak ringgit, returns from overseas investments, especially properties and equity, will be better.
“We have properties in the United Kingdom and Australia. We are still searching for more assets, such as in continental Europe, like Germany and France. In Germany, we are currently bidding for one (industrial) property. If we get it, we will start in Germany this year,” added Wan Kamaruzaman, who also holds directorships in Valuecap Sdn Bhd, Malakoff Corp Bhd and KWAP’s London subsidiary, Prima Ekuiti (UK) Ltd.
KWAP currently allocates 51.8 per cent of its investments in fixed income, 37.9 per cent in equity, five per cent in alternative investments, such as property and private equity, and five per cent in cash as liquidity.
Diversifying investments has become a priority for a public fund like KWAP in an environment Wan Kamaruzaman describes as “lower-for-longer”, where interest rates remain low for extended periods, resulting in moderate returns from fixed income and other interest rate-linked investments.
Overseas investments last year gave the highest returns at 15 per cent, he said in the interview at KWAP’s new headquarters at Integra Tower in Jalan Tun Razak here.
“Last year, we sold a building in London that we bought four years earlier. We bought it for £215 million and sold it for £275 million. Minus cost, we pocketed about £60 million. Overseas investments have their benefits,” said Wan Kamaruzaman, who started his working career with Malayan Banking Bhd and was posted overseas in Hamburg, Germany, and London, UK.
He said while the government has restricted the outflow of ringgit in the last two years, it is still possible for KWAP to expand its investments overseas on a case-by-case basis and by utilising existing assets overseas.
“For instance, we bought a property (in Australia) at AU$200 million, now we can take a loan equivalent to 70 to 80 per cent of the value of that property, and we have about AU$140 million to be invested anywhere we want. So, we are using loans and increasing our investments overseas using our existing assets that does not involve forex,” Wan Kamaruzaman added.
KWAP’s equity investments overseas — currently focused on Asia, Europe and UK — can also be diversified in the same manner, he pointed out.
“We may also enter into US equity markets because we want to continue diversifying. In Europe, we have €250 million, in UK we have £250 million managed by our UK office. If we diversify, we can add on some money to Europe, move some money to the US market as well as Asia Pacific markets and cover more countries. That is how we diversify within the asset class,” Wan Kamaruzaman said.
On the local front, KWAP is looking for investment opportunities in development of retirement homes, as well as partnering with established developers to undertake projects on two pieces of prime land it owns in Kuala Lumpur — in Jalan Stonor and Jalan Changkat Kia Peng. Additional reporting by Zarina Zakariah