KWAP explains stance on eFishery

KUMPULAN Wang Persaraan (Diperbadankan) or KWAP has identified private equity (PE) as an area of focus for securing superior returns.

The pension fund for civil servants invests in PE funds as well as directly in companies – the latest being local coffee chain ZUS Coffee.

Compared with KWAP’s fund size, the PE exposure is small.

Out of its total fund size of RM185.6bil, less than 6% is committed to PE, with 88% invested in PE funds and the balance through direct investments, whihc is just about 0.7% of the total fund.

Nevertheless, it is the scandal-hit eFishery Pte in Indonesia that has put a spotlight on PE deals and their risks.

It is understood that KWAP invested around US$30mil in the Indonesian startup involved in aquaculture downstream in July 2023.

Two months ago, reports emerged about financial irregularities in eFishery. Key personnel have been suspended and a forensic investigation is ongoing.

There are many big investors in eFishery, including KWAP, who stand to lose money on this bet. Such is the high-risk nature of PE.

KWAP, speaking for the first time since the issue hit the headlines, says it’s too early to draw any definitive conclusions about a write-off.

“KWAP, along with other investors, is actively monitoring the situation while awaiting the final forensic audit report.

“It is important to note that, at the time of KWAP’s investment, eFishery had a positive net profit track record, with its financials audited and receiving a clean opinion from reputable international audit firms,” the fund’s spokesperson tells StarBiz 7 via e-mail.

According to KWAP, to uphold its fiduciary duty as well as maximise recovery efforts, it will work closely with international legal and financial experts. It will pursue all legal and financial options to protect its investment.

In 2013, eFishery was founded, and among its early investors were Temasek Holdings Pte Ltd and SoftBank Group.

KWAP invested in eFishery during its Series D round of funding, which comes before an initial public offering (IPO).

The spokesman explains that KWAP’s participation in Series D was part of a larger US$200mil investment round. This included highly reputable investors from Abu Dhabi, Europe, Singapore, Japan and Indonesia.

By this point, eFishery had reached a valuation of about US$1.2bil, making it a unicorn.

Even at Series D, none of the major international PE funds had exited eFishery.

According to its spokesperson, KWAP’s investment in eFishery is part of its broader strategy of diversifying its portfolio, capturing opportunities in emerging markets, and exploring innovative areas like agri-technology.

It made a socio-economic impact on Indonesia’s aquaculture smallholders at that time, making eFishery a recognised player in aquaculture technology. There was a track record of profitability and a growing international presence for the company.

The spokesperson says it engaged renowned external advisers prior to committing to cover financial, commercial, technological and legal risks with due diligence or legal documentation.

External advisers confirmed that the investment was viable and met international governance benchmarks. KWAP’s investment was funded through investment returns.

A venture capital (VC) player says that food security is a global need and aquaculture technology is an emerging growth sector, so it was only logical for investors to gravitate to eFishery, backed by investors like Temasek that have remained on board even up to its recent Series D round.

“This signals strong validation of its business model and scalability,” he says.

Despite passing multiple audits with “clean opinions,” eFishery was found to have financial irregularities. In the short period of 2020 to 2023, eFishery’s external auditors rotated between three top-tier firms.

“How did they get through so many years without any red flags even before KWAP invested in 2023?” the VC player asks.

According to him, the episode demonstrates that even high-growth, audited companies aren’t immune to governance issues, and the board of directors and professionals vetting these companies should step up their game.

Considering the importance of PE in a well-diversified portfolio, it’s no surprise that other government-linked funds are also shifting capital to this asset class.

A recent example is Permodalan Nasional Bhd and Khazanah Nasional Bhd’s investment in FashionValet Sdn Bhd, where the funds suffered significant losses, he adds.

The spokesperson for KWAP says the eFishery incident will not deter it from evaluating direct investment opportunities.

“The eFishery case stands out as an anomaly, and we remain open to future direct investments, each decision is made on a case-by-case basis, ensuring a strong focus on risk-adjusted returns, portfolio diversification, and long-term value creation.

“Initiatives like Dana Pemacu and Dana Perintis reflect KWAP’s measured and strategic approach to expanding its direct investments,” the spokesperson adds.

Currently direct investments represent just about 0.7% of KWAP’s total fund size.

“Over the past three years, PE investments have delivered an annual internal rate of return of 15%, outpacing returns from public equity.”

Dana Pemacu was launched last May with an allocation of RM6bil, and Dana Perintis in 2023 with an investment commitment of RM500mil.

During the fiscal year ended Dec 31, 2024 (FY24), KWAP reported its highest investment income of RM18bil and delivered total returns of 12%. The fund supports 810,000 pension recipients across Malaysia, up 2.4% from a year ago.

KWAP reaped significant value from its investment in food and confectionery manufacturer Munchy Group after exiting to CVC Capital Partners.

In spite of this, there are cautionary lessons to be learned from the eFishery case.

“Thorough due diligence is key. Did eFishery investors rely too heavily on optimistic projections,” the VC player says.