It seems to be a time of change in the world’s sovereign wealth funds.
Monday brought news that Zafer Sonmez, head of the Turkey Wealth Fund, is to leave in a reshuffle. Temasek has finally confirmed Dilhan Pillay as successor to chief Ho Ching. And in Kuala Lumpur, rumours are swirling that the contract of Shahril Ridza Ridzuan as head of Khazanah Nasional may not be renewed.
The speculation around Shahril has been building for a while, but the fund’s annual report released on Thursday added to the clamour.
Khazanah reported profits from operations of RM2.9 billion ($715 million) in 2020, a 61% year-on-year drop. Its total realizable asset value across its two underlying funds, commercial and strategic, dropped to RM123.2 billion; the reporting metric on the commercial fund changed during the year, but on the strategic fund side that represented a 15% year-on-year decrease.
That being said, Shahril would be within his rights to say: did anyone notice that global pandemic that wiped out most of the year? Anyone?
Khazanah was at least still profitable. Working out whether or not there is a deeper malaise requires a closer look into the numbers.
So, for example, in the commercial fund – the one that looks most like other sovereign wealth funds, with a diversified range of assets – the asset allocation has been changed over the last two years, dropping Malaysian public assets from 58% to 50%, while increasing public global assets from 12% to 17%. This is a positive development.
Set against that, 50% is still way too high for domestic assets in Malaysia – and the fund paid the price. Malaysia’s stock market didn’t get the tech-led bounce that global markets did; and its GDP suffered more than global growth.
Malaysian public markets accounted for a 7.8% year-on-year loss (and Malaysian private markets a 6.4% loss), while the public global markets position was up 26.2%. It is easy to see the difference it would have made in portfolio terms if domestic and international public assets were weighted the same.
Lost opportunities
The commercial fund sold a lot of assets, divesting RM13.2 billion, compared with RM5.6 billion of investments, in order to increase liquidity, moving the cash position of the portfolio from 1% to 7%. That is prudent.
But it also doesn’t earn anything, and there were surely opportunities to put cash to work opportunistically through the year, particularly overseas.
The strategic fund – the one that holds the Malaysian state’s positions in national champions such as Tenaga Nasional and Malaysia Airlines, as well as developmental assets such as the Iskandar development in southern peninsular Malaysia – is a bit harder to do much about, since it can’t really be diversified. When your key holdings include an airline and an airport company, at a time when nobody can travel internationally, you can’t really do much about that portfolio value.
And Shahril should be given credit for reducing debt, by 6% year on year in 2020, to RM43.1 billion. The fund has been under a process of restructuring for some time, with the London and Istanbul offices closed. Amid this, the fund delivered dividends and taxes of RM2.2 billion to the government of Malaysia.
Shahril should be given credit for reducing debt, by 6% year on year in 2020
It is not all bad.
Shahril came in to Khazanah with an extremely strong reputation after running the Employees Provident Fund, Malaysia’s powerful and vitally important pension fund.
At a time when all around were being drawn into various scandals following Mahathir Mohamad’s succession of Najib Razak as prime minister, Shahril was clean, and his appointment to the sovereign fund was welcomed.
His contract at Khazanah ends in August, and if it isn’t renewed, who next? In February, local publication Asia Asset Management reported that Jeffri Salim Davidson, chief of the Sime Darby conglomerate, was being considered.
Shahril did not respond to a direct email request for comment from Euromoney on Tuesday.
“2021 will continue to be a challenging year,” he said last week. “In key sectors such as aviation and tourism, it is unlikely that a full recovery will happen before 2023.”
It remains to be seen if he will be around for that.
