Khazanah responds to reports about underperformance

KUALA LUMPUR - Malaysia's sovereign wealth fund Khazanah Nasional has responded to news reports that it has been underperforming, saying the media was zooming in "on a narrow and incomplete set of indicators and financial performance".

"We wish to state that the articles give an inaccurate and ultimately misleading picture of Khazanah's financial performance," it said in a statement issued late yesterday.

The Straits Times reported yesterday morning that the management of the fund, which has RM145 billion (S$47.8 billion) in assets, was being pressured to increase returns to government coffers.

The report was picked up by Malaysian news sites as well as TV3, the country's top free-to-air television station.

But Khazanah said that its Net Worth Adjusted (NWA) - which is realised and unrealised returns, as well as dividends - had more than tripled since managing director Azman Mokhtar took over in mid- 2004.

"This translates into an annual compounded return of 9.3 per cent per annum over the 13-year period, rather than just the 1 per cent or 2.6 per cent return as is implied by the articles," it said.

The Straits Times, after analysing Khazanah's published financial records, had reported that the fund's dividend rate was below 1 per cent while its profit before tax was 2.65 per cent of the fund size during the same period.

The fund confirmed that its NWA growth was lower than the Kuala Lumpur Composite Index's 9.4 per cent pace during those 13 years. The index is the benchmark for Malaysia's stock exchange.

The Straits Times had also found that Khazanah's NWA growth was slower than that of China Investment Corporation (CIC).

Khazanah's profit before tax, before taking into account unrealised gains and losses, was also lower than Singapore's Temasek Holdings, CIC, Alaska Permanent Fund Corporation and the world's largest sovereign fund, Norway's Government Pension Fund Global.

Khazanah in its response pointed to "a multi-pronged mandate that includes investing for growth and commercial returns - domestically and internationally - while also undertaking developmental and national initiatives".

"The range of returns of these initiatives vary widely from low or even negative returns for more developmental activities, to significantly higher returns for our commercial and international operations," it said.

The fund also defended its dividend policy, saying that as it does not receive regular capital injections, "the bulk of its returns are primarily channeled into reinvestments rather than to dividends".

Khazanah said it also tracks "non-financial measures of performance including economic, strategic and societal indicators".

Khazanah did not respond to The Straits Times' request for comment before its report was published on Wednesday.

But the article did note that Khazanah's investments in strategic industries that support government policies could drag down returns.

One such example would be ailing national carrier Malaysia Airlines, which has cost taxpayers more than RM17 billion in bailout packages since the government took control in 2001.

Khazanah confirmed it is undertaking a succession plan, as Tan Sri Azman's contract expires in mid-2019, and said the "orderly succession process, approved by our Board of Directors that is in line with good institutional practice."

Second Finance Minister Johari Abdul Ghani had told The Straits Times that Khazanah's succession plan would make increasing returns a priority.

"I think that for anybody who is going to run that outfit, certainly that will be part of their KPI," he said, referring to key performance indicators.

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