Malaysia's sovereign wealth fund says overseas investments give better returns

Malaysia's sovereign wealth fund says overseas investments give better returns

KUALA LUMPUR - Malaysia's sovereign wealth fund Khazanah Nasional Bhd will be looking at expanding its presence overseas amid expectations that domestic and global economies will remain volatile in 2016.

Managing director Tan Sri Azman Mokhtar said the fund's international investments had been giving it a higher rate of return compared with returns from Khazanah's legacy assets.

Overall, Khazanah's investments, which includes legacy assets, have given it a return of 10.7 per cent in 2015. But if separated, its international investments have given it about 18 per cent per annum.

"The legacy assets are difficult and drags the portfolio down while the newer discretionary investments are actually performing in the mid teens.

"Maybe Malaysia has done well but we need to diversify regionally and for several reasons," said Azman at the press briefing in conjunction with Khazanah's 12th annual review.

Malaysia was still a relatively small market, and needed to build its presence and linkages, he added. Malaysia accounted for about 55.1 per cent of Khazanah's realisable asset value (RAV) by geographic exposure in 2015.

One of the sectors Khazanah hopes to increase its presence overseas is in the area of innovation and technology.

"Currently innovation and technology is only about 2.3 per cent, which is relatively small. We think it should be more. The key point is yes, it'll be risky but at the same time it is risky not to get involved," he said.

Investments will either be made directly, such as Khazanah's investment in Jack Ma's Alibaba Group, or through funds.

Azman said Khazanah was also starting to invest in frontier markets, such as Africa, through funds. "We are careful with our portfolio allocation."

The fund recently announced it was among five new partners who would invest US$192mil (S$276 million) in Edinburgh-based Skyscanner, a tech-based travel service.

The company, which was founded in 2003, provides free search of flights, hotels and car hire around the world.

Khazanah also revealed that it paid out RM1.05bil in dividends in 2015 from its pre-tax profit of RM1.176bil (S$384 million), which is its highest payout ratio.

The payout in amount was slightly higher than the RM900mil it paid out in 2014, but Khazanah's pre-tax profit in 2014 was close to three times higher at RM3.217bil.

Azman said the payout level is at a reasonably comfortable level from a cashflow and accounting standpoint.

In terms of dividend policy, he said it is usual for companies to give dividends that are predictable and sustainable. "It's not good to yo-yo and your dividend levels should be relatively predictable. It does not make it less nimble. The asset cover, liquidity ratios, and other ratios show there is no issue. I think we have enough cash reserves."

Khazanah's asset cover stood at 3.1 times in 2015, slightly lower than the 3.7 times it recorded in 2014.

"We don't get money coming in every month. It's good in a sense because it means we have to be very careful with the asset and liability balance," Azman added.

In 2015, Khazanah's portfolio RAV, which measures the total value of its investments, grew 3.2 per cent to RM150.2bil despite the volatile and challenging domestic and global environment.

Growth in RAV has slowed compared with what it recorded in 2014. Khazanah's RAV in 2014 stood at RM145.5bil, representing 7.7 per cent year-on-year growth from 2013.

Meanwhile, its net worth adjusted, or the value created in its portfolio, fell 1.6 per cent to RM109bil from RM110.7bil a year ago, impacted by its foreign liabilities.

He said Khazanah's portfolio was financially resilient, as shown by its more or less flattish performance despite the volatility in the market.

In 2015, Khazanah made 23 investments totaling RM8.7bil and 10 divestments providing proceeds amounting to RM5.3bil, with gains on divestments totaling RM2.9bil.

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