Improving national fund manager’s future

  • Business
  • Saturday, 29 Sep 2018

THERE is great interest in how Tan Sri Zeti Akhtar Aziz will perform as the chairman of Permodalan Nasional Bhd (PNB). Any doubts from the public engagement perspective, however, were soon cast aside as the ease and confidence of her message was second nature for a person once named the world’s best central banker.

For all her experience and accolades, her role as the chairman of PNB marks a shift from being a career regulator to one who is now in charge of answering to a different set of stakeholders. Zeti spoke with a group of editors prior to her maiden press conference with the media and provided some written answers to further queries. The following are excerpts of what she said.

What do you hope to bring to PNB from your experience at Bank Negara and how will that help with returns to members?

PNB is a well-established and professional institution with a strong foundation and a clear strategic mandate to generate wealth for its unit holders. Looking ahead, our focus must be on reinforcing our inherent strengths and addressing weaknesses and gaps in order to tap on new avenues of growth.

At the central bank, during my term in office as governor, we undertook an organisational transformation three times. We were very ambitious to be at the frontier of central banking.

I would like to be equally ambitious here to achieve this higher level of performance through greater organisational capability and competence.

For PNB, the Strategic Plan 2017-2022 is almost midway and I would like our review of the plan to focus on three areas for improvement:

> Refining the framework for asset allocation – Diversification among the different asset classes and diversification to international investments, which should not be limited to only developed markets but to seek opportunities in emerging markets.

> Enhancing risk management – Creating a robust framework to ensure resilience to economic cycles and financial shocks. Part of this is to strengthen liquidity management while also building buffers during the good times.

> Enhancing organisational capabilities – Strengthening from within and building internal expertise.

With a strong base and a clearer framework for these three areas, I am confident that PNB will be able to operate more effectively and efficiently while generating sustainable returns for unit holders.

PNB is a large influencer in the property market. How will the group and its companies change the offerings and direction of the property market?

There is certainly tremendous potential to be tapped in the property sector, particularly in sub-segments which have not experienced an oversupply. However, in terms of changing direction, this will take time. We will need to comprehensively review any changes that we aim to make, be it in the property sector or any other sector.

We must weigh the risk factors and how it will impact the wider sector. We would not want to make drastic changes which would affect the market. What is important is that we review opportunities and shift towards the frontiers of property development and meet the areas in which there is demand. This includes affordable housing.

You spoke about sustainability in returns. What will this mean for members in terms of their returns and the asset allocation by the fund?

The five initiatives under the first pillar of PNB’s Strategic Plan 2017–2022 are entirely about enhancing sustainable returns. PNB has continued to build on the strategic plan momentum and we have seen encouraging progress in these initiatives this year.

Our initiative to optimise asset allocation continues with the judicious deployment of cash and with global investments.

At the same time, PNB will continue to actively pursue value-creation opportunities in all of its other initiatives such as the transformation of our strategic companies to boost domestic public equity performance, diversification into global assets, increasing exposure in private equity and fixed income, and rationalising and enhancing PNB’s property investments.

How do you see the challenges in the fund-management business with changing investment decisions, especially by the younger generation?

The landscape is highly dynamic and ever changing, and we need to be responsive and agile in ensuring that our products are relevant and well accepted. Especially with the launch of the new ASNB variable price funds, ASN Equity 5 and ASN Sara 2, we are offering additional options to meet the differentiated investors’ needs at the various stages of their life cycle.

Can you elaborate further on your plan to rejuvenate your property development and investment both for PNB properties and your investee companies?

While we are aware that there is an oversupply in some categories, there are new segments and frontiers in the property industry for us to explore. Gradualism is our approach to this. We aim to build up capabilities first before venturing forward.

For the time being, PNB has made headways in rebalancing its real estate portfolio. Let me clarify that for PNB, we will focus more on becoming a property investor, where property is one of the asset classes for us to invest in and we have exited from property development with the disposal of I&P Group Sdn Bhd in 2017.

This year, we have completed the sale of 90 High Holborn and also secured WeWork to occupy one of our London properties, Aviation House, where WeWork’s presence is part of the rejuvenation plan for the building.

Our flagship landbanking company, PNB Development Sdn Bhd, also completed a number of deals that include the sale of Kota Seri Langat land to AREA and the purchase and leaseback of Media Prima commercial properties.

When you came into office in July and after having various meetings at PNB, how can you describe PNB’s work and what was your impression of the firm when you came in?

My first impression of PNB was that it was a very professional organisation that had a very focused mandate and that mandate was wealth creation for its unit holders. There is great clarity on what we need to do. I find that the level of professionalism is very high. There are people who are new that have been brought in with high-powered backgrounds, and there are highly experienced members that have been with the organisation for two to three decades. They have good institutional memory and remain as great potential to lift the organisation to a higher level of organisational capability to perform better.

The first thing you assess in an organisation is the strategic focus. It is easy at PNB because of its mandate but it was more complicated with the many mandates at the central bank.

The next thing is having a performance-based organisation. Everybody has to deliver. Every year, the board at Bank Negara will assess my performance.

I come from a regulatory and policy-making background. Managing reserves was one of my portfolios when I was an assistant governor with the central bank. The areas where we achieved great advancement at the central bank include the framework for asset allocation and investment and diversification to generate better returns.

Most importantly is the area of risk management at the bank. Most of the people at the bank would have great pride, as we probably have one of the most advanced risk-management frameworks in place.

In terms of liquidity management, PNB has been conservative by holding a very high proportion of cash. While it is good to be conservative, it is also good to have the instruments and the mechanism to better manage the liquidity in the organisation that can contribute to generating better value for its investments.

These are some of the areas that we are working on and the other area is organisational transformation to achieve a higher level of performance. During my term with the central bank as the governor, we did organisational transformation three times. We were very ambitious to be at the frontier of central banking. So, I would like to be equally ambitious here, to achieve this higher level of performance through greater organisational capability. This would involve leveraging on operations, distribution and technology.

We are going to review our strategic plan at PNB that is coming up to its mid-point. We are going to see what we can do to advance the performance while managing our risks.

On the Strive-15 strategic plan, would that still continue as planned or would there be changes?

For the Strive-15, we are currently at 2.5 years out of the five-year plan. The environment that we are living in is not static, but highly dynamic. We need to do an environmental scan at this stage, not only the domestic but international environment that is rapidly changing. We are facing many new challenges, so it is appropriate to make a review at this point of time.

As I mentioned, we need to increase our capability in risk management. So, when we look at the kind of investment that we want to enter into, we need to go in with our eyes open and knowing what is the outlook and how to mitigate the risk. We also need to build buffers because there would be a period where there may be setbacks as the environment out there is beyond our control. So, we need to be resilient so that we can withstand development that occurs in the economic cycle and financial shocks.

These are the factors that we will take into account when we undertake these reviews. My own style is that I am very open to listening. We will listen to everyone and will be having significant dialogues and engagements because, for example, we are invested in companies such as in the oil and gas sector and in the property sector. We need to engage with people that have expertise in these sectors.

The review of the PNB strategic plan. What is it about?

Review is in terms of liquidity management, where there is a way of generating higher returns by effectively managing the liquidity position. In terms of risk management, at Bank Negara, we had to manage the reserves. Our governance process and risk management was greatly enhanced (after the forex reserves losses three decades ago). We tapped on the best practices in the world and I would say, it is the most advanced I have seen. I would like to see that kind of risk management in this organisation as well.

The portfolio diversification is to intensify that. When you diversify your risks, you can also reduce it and enhance the performance.

We have to rationalise and enhance the property investments because big organisations have rushed into being involved in property development and investments. If we don’t manage it well from a macro perspective, this is going to lead in the next two to three years to an excess oversupply. We don’t want to be part of that, not only from our own investments but also for our strategic companies to have an awareness of what the trends and opportunities are. There are many opportunities at the frontier of property development. If we build our capability, we can be at the leading edge.

We also have to migrate to a higher level of technology to improve the performance of PNB.

Are you going to increase PNB’s overseas investment?

This is something that we need to do gradually. Gradualism is one of the approaches that will be taken because we have to build our own internal expertise. But, there is no doubt that diversification is important. It is important not only across asset classes but also geographically. This is because of the size of PNB.

We have grown and become very significant within our own financial system and economy. As such, we need to diversify. Very often people think about diversification as into developed financial markets. That is the trend. Even in Bank Negara, when we managed our reserves, initially, we were focusing on developed countries and developed financial markets.

However, there is great opportunity in emerging financial markets. At the central bank, we started this move towards investing in the emerging world in 2003. Of course, it started only with 1%-2% of our portfolio and as we build expertise, we increase the size.

This would be the approach that we will be taking in PNB...we are not going to rush into it. We will build our capability and venture forward.

PNB already has investments in international financial markets and the property sector, which are already contributing positively to earnings.

Do you think that the market is over-reacting to the trade war between China and the US, as well as the fund flows?

The market is always exaggerated developments, it overadjusts. The exchange rate market overadjusts more and there is always overshooting. But after some time, it will trend back towards the equilibrium level.

It is the same with the stock market. The stock market should reflect the underlying performance of the corporation that it is assessing. Sometimes, it reacts to developments that affect that particular corporation and there is an overadjustment. When they recognise the actual foundations and potential of that particular corporation, then you’ll see a recovery in the stocks.

Our economy is quite good, but what are the risks with the trade war?

One of the restructurings that we did was to have a diversified economy. Because we have domestic demand that drives our economy as well, the reason why we had 6% growth was because both the domestic and external were strong. When one is not strong, growth will fall to 4% or so. If we are set back by trade or by something that is beyond our control, then one of the things is to manage well the debt of the country. If we manage that well, we will come back up to more than 5% growth.

All the things that may happen, Malaysia has the potential to address them and deal with them. Very often, economies that are set back because of debt or trade or global developments, they don’t have other sources of growth but we do.

The US-China trade war can affect us if it goes beyond where it is now. It will not only affect China but also the US. They are promoting industries where they do not have a comparative advantage. It is not in their interest to develop those kind of industries. Their cost is much higher. They are better off focusing on areas where they do and import the goods from other countries that have a comparative advantage.

They may be successful in the next one year, but when this (the trade war) has its full impact, it will set back the US. And the US is an important trading partner for Malaysia. It used to be our largest, but now, it is second to China.

Will there be a change in giving good dividends?

That’s the main mandate where we want to give a positive rate of return to unitholders, but our return can only be one that is sustainable. It is not good to give a high return one year and then not match it the following years. What we want is sustainable returns. We don’t want to build false expectations. We want there to be transparency in what we do and the income we generate, and of course, we will give the best effort. The environment is always challenging and we don’t want to build false expectations.

At the same time, we will try to educate very aggressively and intensely so people people will know whether it is going to be higher or lower before we give it because they understand better. We want people to be financially savvy and we will do everything possible so they will understand.

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