KWAP on being a responsible lender


KWAP acquired its maiden property in Malaysia – the 39-storey Integra Tower (right), which is part of The Intermark development, for RM1bil. This is in line with its decision to plough more money into local investments. STARpix by AZHAR MAHFOF.  See also page 18

KWAP acquired its maiden property in Malaysia – the 39-storey Integra Tower (right), which is part of The Intermark development, for RM1bil. This is in line with its decision to plough more money into local investments. STARpix by AZHAR MAHFOF. See also page 18

CEO says that it has learnt from previous lessons, sheds light on the issue of Bank Negara rep not being on the fund’s board

RESPONSIBLE lending transcends beyond banks. Even government-owned Retirement Fund Inc, or better known as KWAP, has learnt that it has to know what a borrower does with its funds.

KWAP, which has RM110bil in its coffers, generates income to assist the Government’s pension payments to civil servants. And the amount of money it lends to companies constitutes about 10% of its total fund size and is an important part of its returns. It’s classified under KWAP’s fixed income portfolio which includes Malaysian Government Securities and Government Investment Issues and corporate bonds, which together account for 55% of its asset allocation.

But KWAP has been in the news for the wrong reason of late, especially surrounding a loan of RM4bil given to the Finance Ministry-owned subsidiary SRC International Sdn Bhd. Controversy swirls over where and how that money lent to the once-subsidiary company of 1Malaysia Development Bhd has been spent.

KWAP CEO Wan Kamaruzaman Wan Ahmad has said that the risk of the 10-year loan to the fund has been mitigated by a government guarantee it obtained but the reputational damage is a by-product that still lingers with the pension fund.

“It’s about SRC and the allegations why we were not responsible for it (the loan),” he tells StarBizWeek on why KWAP now monitors how its money is used.

“But the lesson learnt is that we as a lender need to exercise some form of moral obligation and be a responsible lender.”

Doubts over how the money was utilised is part of the reason for Wan Kamaruzaman, who was made CEO after the loan to SRC was given, to form a loan monitoring unit within KWAP.

“Going forward we want to be more responsible. All the governance needs to be in place and the reports submitted must be on time and be with substance,” he says on the role the unit undertakes.

“That unit will enable us to see how the loans are being drawn-down and managed. If you just lend money and are not bothered and just wait for reports, that’s not good enough,” he says.

“If a draw-down was for a particular phase of a project, we will go to the ground to see if the project has been carried out in accordance with the purpose of the draw down.”

Wan Kamaruzaman says construction is also key to increasing profitability and getting a right partner is crucial, which will be decided by the investment and operations boards.an Ahmad speaks to the media after the announcement of KWAP’s 2013 finance results at The Westin Hotel,KL on 25 August 2014.The Star/Sia Hong Kiau.
Wan Kamaruzaman says construction is also key to increasing profitability and getting a right partner is crucial, which will be decided by the investment and operations boards.an Ahmad speaks to the media after the announcement of KWAP’s 2013 finance results at The Westin Hotel,KL on 25 August 2014.The Star/Sia Hong Kiau.

The loan-monitoring unit is symbolic of the changes that have taken place within KWAP, which recently tabled amendments to the Retirement Fund Act 2007. The objective is to bring more transparency and to allow KWAP to invest in a wider range of products and instruments.

It aims to seek the right to get involved in construction and invest in natural resources, among others. In short, the changes proposed are to bring KWAP on parallel terms that govern the investment strategies of the Employees Provident Fund (EPF). The EPF is allowed to invest in property projects at its conception. Examples include its investments in Setia EcoPark and the Battersea in London.

However, the proposed amendments have not been tabled in parliament because of the deluge of Bills towards the end of the dewan rakyat session.

Bank Negara rep

Wan Kamaruzaman hopes the proposed amendments to its Act can be passed in the next parliamentary session starting from May 18.

KWAP has been hurled with allegations that the changes to the Act would reduce the safeguards in its investment policies. In this respect, KWAP has come under scrutiny because under the proposed amendments, the representative from Bank Negara on the KWAP investment panel would relinquish its seat.

The accusation by the opposition was that such a move would spell trouble to KWAP and reduce the check and balance.

But Wan Kamaruzaman denies this and says that the proposed amendments pertaining to Bank Negara was made at the request of the central bank to avoid conflict of interest.

“We have that request in black-and-white from Bank Negara asking us to remove them from the investment panel because there is conflict of interest,” says Wan Kamaruzaman. “We spoke with Bank Negara (on the matter) and it made sense... so we put in that clause. The Finance Ministry has also agreed. It was not that we indiscriminately took out the Bank Negara rep from the investment panel.”

In this respect, Bank Negara representatives have also, in the past, stepped down from board positions in Khazanah Nasional Bhd to avoid conflict of interest as the central bank was a regulator and should not get involved in funds that invest in and outside Malaysia.

It is learnt that the Bank Negara representative on the board of EPF would also step down to avoid conflict situations.

To Wan Kamaruzaman, the issues clouded the over-riding importance of the Act.

Changes to the Act, if passed, will allow KWAP to invest like the EPF. That is important to Wan Kamaruzaman as the EPF is seen as the benchmark fund in Malaysia.

Even without the proposed amendments KWAP could invest in almost anything where the EPF puts its money in. But the significant difference is that it has to get the permission of the Finance Minister. The proposed amendments on its investment guidelines would effectively spell out where the fund can put its money in black-and-white. The changes would give it the right to do so and at the same time keep the existing check and balances in place.

“There are checks and balances. Each level of management has its limits and authority. There is a lot of governance involved. I just want to be transparent,” he says.

Those changes, he says, are to bring more efficiency to KWAP. Among the changes planned was for KWAP to handle pension payments but not the pension liabilities.

“The gist of the changes is that we want to take on pension payment and liabilities. That was the key to the changes. Under our current Act, we are not able to do so and are purely an investment management house. It doesn’t allow us to go to the next stage of taking care of the pension payments and would make KWAP a full-fledged pension fund,” he says.

What that will mean is that KWAP will handle the pension payments but not the liabilities, which was assessed to be RM300bil in 2013. Assuming the responsibility of pension payments may open new business avenues for KWAP when it comes it selling other risk-free financial instruments to cater for pensioners.

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