KUALA LUMPUR: The Retirement Fund Inc (KWAP) will rebalance its investment portfolio with higher investments in non-listed entities and fixed income in a bid to grow its fund size to RM200bil by 2025.
KWAP, whose fund size stood at RM159bil at end-2021, said it plans to make a bigger move into the private investment market for higher returns.
“Moving forward, our focus will be very much on the private market side – there are three different asset classes in this space.
“They are private equity, infrastructure as well as property,” chief executive officer Nik Amlizan Mohamed said at a briefing yesterday.
“Returns from the public markets have not been on the high trajectory in terms of growth compared to the private markets. We are seeing double-digit growth returns in the private market space,” she added.
KWAP announced plans yesterday to further grow its fund size by adopting the TERAS 5 initiatives.
Nik Amlizan said these initiatives would help the fund deal with the additional requirements, especially when dealing with the private markets.
“With TERAS 5, our focus is to ensure that our capability and skill sets are enhanced as information would not be publicly available on any particular investments in the private markets.
“So we need to do a deep dive into those asset classes to ensure that we know the assets and investments well including the risk-return profile,” she added.
Chief investment officer Hazman Hilmi Sallahuddin said the portfolio rebalancing exercise would also see risk profile adjusted.
“For KWAP, there has been a risk premise that has been set, it’s not that we are increasing our risk but rather optimising the risk allowance given to us to get better returns.
“Of course, we will still bear in mind that we remain a government pension fund,” Hazman said.
He said the fund would like to rebalance its portfolio to 80% public holdings and 20% private holdings from a 90:10 ratio at present.
“This target would be achieved by 2025,” he said.
It is also targeting to increase its investment holdings from foreign sources to up to 30% by 2025 from 20% at present.
A check with Bloomberg shows that KWAP has invested some RM52bil in 138 Bursa Malaysia-listed companies and 13 companies abroad.
KWAP’s portfolio rebalancing targets long-term total returns to increase to 7% by 2025 from 6% now with the TERAS 5 initiatives.
“For the past 10 years, KWAP’s portfolio returns have been about 6% per annum. We intend for this to grow towards 7% – we should not sit on our laurels but stretch this further.
“Our skill sets need to be a lot more specialised and more efficient processes,” said Nik Amlizan.
TERAS 5 is a three-year programme based on elevating five enablers – namely structure, governance, people, processes and digital – to drive KWAP moving forward.
This would see eight workstreams being driven forward with these initiatives including organisational structure, enterprise, investment, contribution and retirement services, digital, people and culture, corporate services as well as risk, governance and oversight.
“TERAS 5 is very much aligned with the aspirations of the government to optimise the strengths of government-linked investment corporations,” said Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz.
“At a time when markets are experiencing unprecedented volatility, I expect KWAP to strengthen its ability to facilitate more catalytic investments that directly benefit the Malaysian economy, continue to grow its fund size and equally important, elevate the service levels for pensioners,” he added.
Nik Amlizan said 2021 saw KWAP achieve a historical high net unaudited income of RM10bil.
“This was achieved in a tough market last year when we were facing Covid-19. We hope to emulate this (achievement) moving forward. I think the KWAP team can be much better moving forward.
“TERAS 5 is fully developed in-house to solidify our foundation to be future ready and grow sustainably, particularly from an environmental, social and governance perspective, underpinned by the 44 initiatives for the benefit of our stakeholders and the nation,” she added.
KWAP was in 2015 officially appointed as an agent of the federal government to pay pensions, gratuity or other benefits to government retirees.
The fund manages contributions from the federal government and relevant agencies for this purpose.