More PEs on KWAP’s radar

RETIREMENT Fund (Inc), or KWAP, is adopting a balanced investment strategy for 2025, aiming to remain cautious without overreacting to short-term market volatility.

The fund targets a minimum 7% time-weighted rate of return (TWRR) for the year.

TWRR measures the compound annual growth rate (CAGR) of a portfolio, independent of cash flows like deposits or withdrawals, reflecting the performance of the investments themselves.

KWAP chief investment officer Hazman Hilmi Sallahuddin highlights the fund’s confidence in achieving this target, drawing on its 12% TWRR success in 2024.

Despite challenges in the first half of financial year 2024, the fund rebounded strongly in the second half.

This positions it for a potentially similar performance in 2025.

Hazman emphasises that KWAP is able to adopt a longer investment horizon and take on higher risks because it has no liquidity requirements.

“We are especially looking to be more active in private markets, increasing our allocation exposure from only 10% in 2022 to 30% by 2028.

“This is also because private market investments take a horizon of up to 10 years, and our risk and timing profile allows for that,” he says.

Hazman says the Dana Pemacu fund, which made headlines in late June with the appointment of 12 global general partners (GPs) and an allocation of RM6bil across conventional and syariah-compliant funds, draws its strategy and concept from KWAP’s earlier initiative, the Teras 5 programme.

Launched in 2022, Teras 5 aimed to enhance KWAP’s internal processes and investment diversification.

It focused on striking a strategic balance between domestic and international exposure, while ensuring equitable allocation across public equity and private market investments.

“The strategy is based on the goal of consistently achieving a 7% TWRR over the long term.

“To achieve this, we focus on targeting private equity (PE), infrastructure and real estate investments,” he points out.

To strengthen Malaysia’s private markets, it is crucial to encourage more participants across the entire value chain.

This involves identifying and assessing the types of companies progressing through the funnel.

Hazman highlights the significant role of PE firms in this process, noting the presence of both mature and high-growth PE companies, as well as venture firms and startups.

To further support this ecosystem, KWAP launched Dana Perintis in 2023, a venture capital fund aimed at fostering greater involvement in the market.

“At this point, we knew we also needed a programme to invest in mid-tier companies which are about to go public.

The challenge in Malaysia is that there are not enough PE managers to invest in mid-tier firms,” he explains.

Mid-tier investments range from RM20mil to RM100mil.

The conundrum is that government-linked investment companies (GLICs) such as KWAP do not typically invest in such funds due to the absence of a track record.

Dana Pemacu was created using the co-GP model to invest RM6bil in 12 funds.

The 12 funds are Investcorp, Navis Capital Partners, Nexus Point, and The Vistria Group for PE; Climate Fund Managers, DigitalBridge, I Squared Capital, and Seraya Partners in infrastructure; and Castleforge Partners Limited, Lendlease Investment Management Pte Ltd, Savills Investment Management, and TrustCapital Advisors Investment Management Pte Ltd for real estate investment.

“All our global GPs have strong track records, and were selected from over 40 proposals we received from about 100 requests we made. The strong response globally was a pleasant surprise.

“Furthermore, we want them to come in, then train and upskill our fund managers,” Hazman says.

KWAP provided these 12 GPs with names of more than 100 local talents, compiled from industries the retirement fund is familiar with, working alongside an international recruitment firm, allowing these GPs to evaluate and decide who they would partner with, including anyone outside of the name pool.

Hazman adds that that these local partners are well known in the local investment sphere with at least 15 years of experience.

“We have also mandated that for Dana Pemacu, at least 40% of the investments would have to be in Malaysia. This is to allow diversification and flexibility to attract these GPs.

“At the end, 63% of the fund has been invested locally, with two-thirds in syariah-compliant investments.

“The GPs have the autonomy to invest the balance in their home regions or otherwise, targeting key economic sectors including food security, education, silver economy and healthcare, energy transition, digital economy, financial inclusion and advanced manufacturing,” he says.

Hazman acknowledges that Dana Pemacu plays a significant part in “passing the baton” to scale up local companies, a core objectivs of the government’s GEAR-uP programme.

He says Dana Pemacu is eyeing a number of deals, including one each in real estate and infrastructure in the data centre theme, on top of a potential deal involving other GLICs in the semiconductors sector.

Notably, KWAP has invested in food and beverage via Mamee-Double Decker (M) Sdn Bhd and Zuspresso (M) Sdn Bhd, the manufacturer of Zus Coffee that has taken Malaysia by storm in recent times.

Hazman reveals that KWAP is not in competition with the Employees’ Provident Fund in terms of achieving higher ROIs, noting that GLICs usually maintain a tight loop among themselves by sharing viable investments.

Overall, he says KWAP plays an important role as an intervenor in strengthening the investment ecosystem in Malaysia.

“People are always asking, ‘Are there enough investment deals in Malaysia?’ and the answer is no, because there is not enough capital – and that’s because there are not enough deals. It is a vicious chicken-and-egg problem.

“We are intervening, but it is not enough to just pump in capital. It is just as crucial for our local managers to have the skill, knowledge and network, which is why Dana Pemacu’s strategy of bringing in these GPs is essential,” he says.

With a fund size of RM185.6bil as of December 2024, built on a CAGR of 9.1% since its inception in 2007, Hazman credits the fund’s success to its strategic asset allocation.

He is confident that by increasing the allocation to private markets to 30% by 2028, it will help the sovereign fund move closer to surpassing, or at least maintaining its long-term ROI of 7%.