Khazanah calls report ‘misleading’, asserts shareholder return is 9.3%

Khazanah Nasional Bhd's 12th annual review pamphlet. (Generic photo)

KUALA LUMPUR: Khazanah Nasional Bhd said it made annual compounded return of 9.3% over the 13-year period from 2004. the start of the revamp of the sovereign wealth fund and government-linked companies.

This was based on the 207% growth in the net worth adjusted (NWA) value of its portfolio from RM33.3bil in May 2004 to RM102.1bil in December last year, it said in a statement in response to The Straits Times of Singapore’s article on Wednesday, Khazanah feels the heat amid push to change its investment strategy.

Khazanah argued that the report gave “an inaccurate and ultimately misleading picture” of its financial performance due mainly to “its selective focus on a narrow and incomplete set of indicators of financial performance.”

The Straits Times said Khazanah made less than a 1% return in annual dividend between 2013 and last year from its assets and that it lost 8% of its value in public wealth over the last two years based on a dip in its NWA.

The daily compared Khazanah unfavourably to several other sovereign wealth funds whose average annual pre-tax profits were higher as a percentage of their fund sizes (Khazanah’s was cited as 2.66%).

Khazanah argued that the rate of total return as represented by NWA growth was in line with relevant benchmarks, in particular with the FBM KLCI, which posted a total shareholder return of 9.4% per annum during the same 13-year period.

As has been widely reported, the most representative measure of Khazanah’s financial performance is to refer to total returns that take into account realised and unrealised returns, as well as distribution of returns through dividends,” it said, adding that its total return was represented by the growth in the net value of its portfolio, i.e. its NWA .

In addition, its audited shareholders funds grew to RM37.8bil as at Dec 31, 2016, from RM13.2bil as at Dec 31, 2004.

Khazanah pointed out that it had a multi-pronged mandate that included investing for growth and commercial returns – domestically and internationally – while also undertaking developmental and national initiatives. The latter include the development of regional economic corridors, reforms of the education sector and the restructuring and catalysing of various economic sectors and national companies.

“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, averaging at the said 9.3% per annum NWA return,” it said.

“Given that Khazanah’s mandate does not involve receiving any regular capital injections, and its need to reinvest for growth and national initiatives, the bulk of its returns are channeled into reinvestments rather than to dividends. This need for a balanced re-investment strategy for growth, development and dividends is done in consultation and approval of the board of directors and the Government," it said.

Given that it does not receive regular capital injections, unlike most sovereign and sovereign-linked funds, it said it must ensure that its returns were achieved with an appropriate level of risk undertaken. 

“A principal risk management measure in this regard is our asset cover (which measures assets over liabilities), which stands at 2.9 times as at Dec 31, 2016.

“We should also record that Khazanah actively tracks other non-financial measures of performance, including economic, strategic and societal indicators. For those interested, these measures are widely reported in our annual reports and on our website (www.khazanah.com.my),” it said.

On its leadership succession, Khazanah said it had a well-established and orderly succession process, approved by its board of directors that was in line with good institutional practice.

The Straits Times had noted that Khazanah’s managing director, Tan Sri Azman Mokhtar, was due to leave in mid-2019 after 15 years at the helm, which may lead to a change in the fund’s investment strategy.