GLICs - push or pull for investors?

MALAYSIA’S government-linked investment companies (GLICs) are stepping up their domestic deployment, and increasingly becoming some of the most influential sources of capital across sectors, from infrastructure and energy transition to technology startups.

With deep balance sheets and long-term mandates, funds like Khazanah Nasional Bhd and the Employees Provident Fund (EPF) are deepening their influence shaping deal flow, often taking cornerstone positions in high-profile investments and crowding into spaces once dominated by private capital.

This growing presence is raising a question within the investment community: are GLICs catalysing broader participation and anchoring market confidence, or crowding out smaller players and distorting valuations?

As Malaysia pushes to accelerate economic transformation while maintaining fiscal discipline, the role of these state-linked funds is coming under sharper scrutiny – not just in terms of returns, but in how their capital allocation decisions influence the depth, competitiveness and long-term resilience of the country’s corporate landscape.

Partnership instead of crowding out

Speaking to StarBiz 7, EPF acknowledges that GLICs play a critical role as long-term investors, but by participating alongside private sector capital rather than displacing it.

“GLIC participation is deliberately structured to crowd in private capital, and initiatives like GEAR-uP show how this works in practice, particularly in sectors like healthcare.

“Under GEAR-uP, our role is not to outcompete existing providers, but to address structural gaps that have historically limited private sector participation,” says the fund.

In healthcare, for example, EPF points out that this includes areas such as step-down care, preventive services, and capacity expansion, and these are critical for system sustainability but may not immediately meet private return thresholds.

In this context, the retirement fund says it provides growth capital to scale up projects and concepts that have been proven viable. “Through this approach, private operators and service providers are able to bridge their funding gaps, with EPF supporting growth without displacing the private sector,” it says.

In addition, EPF says it provides growth capital to scale proven concepts, bridging the funding gap for private operators. It explains that as these models demonstrate viability, private sector participation increases.

Over time, this supports a natural rebalancing, with GLIC involvement tapering as commercial sustainability is established.

Investment strategist at IPP Global Wealth Mohd Sedek Jantan cautions that increased GLIC participation in the domestic capital market is no longer uniformly stabilising, but it has become distinctly bifurcated.

He tells StarBiz 7: “In the FBM100 index for example, GLICs continue to function as quasi-price stabilisers by compressing risk premia, dampening volatility, and supporting orderly price discovery, particularly against the backdrop of a persistent decline in foreign institutional ownership since 2020.”

He says the long-duration liabilities and limited redemption pressures of GLICs enable counter-cyclical capital deployment, making them a critical anchor in an otherwise shallow and sentiment-driven market.

However, GLICs do not stabilise all parts of the market equally. In primary markets and policy-directed sectors, GLIC participation can cause problems.

They prevent market prices from properly guiding investment, making the market less efficient

This impact, Mohd Sedek says, contributes to emerging pockets of valuation inflation, particularly in priority sectors like renewable energy, data centres, and large-scale infrastructure, where commercial return thresholds appear increasingly secondary to policy objectives.

“More structurally, rising GLIC ownership concentration reduces effective free float, creating an appearance of stability while weakening price discovery and diluting the informational content of market signals,” he notes.

However, the risk is not eliminated. Instead, it has been reallocated, increasingly borne by long-term domestic savers, including pension contributors and unit holders, creating a form of inter-generational risk transfer, says Mohd Sedek.

Returns versus national objectives

As a retirement fund, EPF reassures contributors that its primary responsibility is to safeguard and grow members’ savings, emphasising that all investments are therefore guided by a disciplined focus on sustainable, risk-adjusted returns.

It invests in sectors such as healthcare, data centres and energy transition where there are strong long-term commercial fundamentals.

These sectors are aligned with national priorities and investment decisions remain grounded in their ability to generate consistent returns.

It stresses: “The EPF does not trade off returns for national objectives; rather it identifies opportunities where both can be achieved through prudent, long-term investing.

“In this regard, we do not believe that generating returns for our members and supporting strategic national objectives are mutually exclusive objectives.”

Do GLICs make Malaysia more attractive?

EPF is confident that it plays a strategic role in crowding in both private and foreign capital by anchoring investments and partnering with global and domestic investors on commercially structured opportunities.

This includes co-investments, fund partnerships, and platform-based investments that allow private capital to participate alongside institutional capital under clear governance and return frameworks.

“This approach is further strengthened under the GEAR-uP initiative, where GLICs are collectively stepping up investments in high-growth and high-value sectors to catalyse broader economic participation,” it says.

To enhance Malaysia’s attractiveness as an investment destination, EPF believes that continued progress in policy clarity, regulatory efficiency, and the development of a strong pipeline of investable, high-quality projects will be crucial.

A consistent and predictable investment environment remains key to attracting sustained private and foreign capital flows.

Mohd Sedek says that in certain circumstances, the presence of GLICs helps to strengthen market confidence, but in others, it can constrain access to investment opportunities, particularly for smaller players.

He recognises that when GLICs act as anchor investors, they provide a strong signalling effect that a project has undergone rigorous evaluation, thereby reducing uncertainty and facilitating private capital participation.

In such cases, Mohd Sedek says GLIC involvement can genuinely broaden market participation.

“However, in practice, the most attractive investment opportunities are often determined early, with GLICs engaged at a stage when key terms remain negotiable. By the time these opportunities are opened to the wider market, most critical decisions have already been made, leaving smaller funds with residual allocations rather than meaningful access to primary negotiations,” he points out.

For foreign investors, while partnerships between GLICs and global institutions may enhance Malaysia’s visibility, he says the translation into sustained capital inflows remains limited.

Over time, this dynamic raises concerns about the competitiveness of the domestic asset management industry.

When high-quality opportunities are concentrated within a narrow network, Mohd Sedek observes that smaller fund managers face structural disadvantages that cannot be overcome through analytical capability alone.

This risks weakening the broader investment ecosystem and undermining efficient capital allocation.

“Nevertheless, GLICs continue to play an important role, but their overall impact depends critically on how participation is structured.

“Without greater transparency and more equitable access, the benefits are likely to remain concentrated, leaving other market participants at a persistent disadvantage,” says Mohd Sedek.