An interview with Tan Sri Nor Mohamed Yakcop on Valuecap.
BizWeek: At this very point, how much does Valuecap have?
Nor Mohamed: We already have RM10 billion. It's not like the money will only come in three to four months' time. We already have it. Of course, Valuecap won't invest all of the money immediately.
Valuecap has RM10 billion. Is it all cash?
It's new money ... and all of it is cash. It is not as if Permodalan Nasional Bhd, Khazanah or Kumpulan Wang Amanah Pencen (KWAP) are transferring shares into the fund.
When you say new money, you mean ...
I say, new money in the sense that Valuecap has RM10 billion that otherwise would not necessarily have gone into the stock market. How and where the shareholders came up with the money, is up to them. They must have got it from fixed deposit, liquidation of instruments and so forth. But they didn't get the funds by liquidating existing securities or from their existing portfolio.
Why RM10 billion – why not more?
We thought it is a reasonable sum for one to take on a long-term investment. It just seemed a reasonable amount and a good ballpark to meet the aim.
What sort of criteria will the fund follow in making investment decisions?
The fund itself will buy stocks in the market; it will not buy from shareholders or go for majority stake. It will be purely a market fund.
Of course, it's all about value investing. It may be a generic term but this is how it will make its investment decisions based on net tangible asset, price earnings, prospects of the sector and industry, good management, sound corporate governance. It will go for good stocks where there is value, as its name suggests, which it will hold over the long-term.
Would a situation arise where Valuecap may trigger the mandatory general offer in some companies it buys into?
No, it won't be an issue. We've worked it out in such a way to give the fund enough flexibility without it having to trigger the GO (general offer). We've worked out the technical part of this but I don't want to go into it. So, the GO problem will not arise.
Was Valuecap set up to prop up the market? And in any case, its total funds are only a small portion of the KLSE's market capitalisation. Please comment.
No. Valuecap was not set up to prop up the market. The purpose of Valuecap is to buy value stocks. Overall, it all goes back to fundamentals. An efficient market needs liquidity. An essential variable in an efficient market is a larger number of strong players with deep pockets and who can hold long term ... professionals who know how to invest. So, the setting up of Valuecap is to create more players ... not to prop up the market. It's objective is to create a more efficient, viable market and in this regard, Valuecap will buy value stocks. There are so many stocks that are below their fundamental value.
How transparent will the fund be?
We promise to deliver transparency and good corporate governance.
Did you have to follow any particular model overseas?
As always, this is home grown.
The shareholders of Valuecap are Khazanah, KWAP and PNB. Because it's not fresh money in the real sense of the word, why couldn't these individual bodies have done the same thing (buying under valued stocks) without quite having to set up a separate body owned by them?
A new player, by its very definition itself is an added impetus for a better market. The shareholders may be the same, but we have created a new player, one with new focus, fresh attitude with no legacy problems.
In any case, it's different to do it this way, because PNB and KWAP did not need to invest that money in the stock market. But now, we have the fund with money from them and it will be invested straight into the stock market.
What kind of benchmark returns is Valuecap targeting?
It's all about value investing. There will be profits to be made to shareholders. Valuecap, we think, will earn more than the market returns over the longer period. With good professional staff and value investments, we think we can get better than market returns.
Sure, the shareholders will enjoy the returns. But how will the people get to share it, for example PNB's unit holders?
For PNB, it will reflect in the dividends it gives out to unit holders.
Even if Valuecap was not set up essentially to prop up the market, some say, that its creation is to cushion any untoward sell down in the market in the event war breaks out in the Middle East or terrorist attacks. Is this true?
No, certainly not. It was not set up to prop up the market. It is meant to create a more efficient, viable capital market.
But surely Valuecap would come in handy in the event there is panic selling or a shares meltdown?