Shahril takes charge of Khazanah

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By:
Chris Wright
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The choice of Malaysia's Employees Provident Fund as the next head of the country's sovereign wealth fund is intriguing for both institutions

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When Khazanah, Malaysia’s sovereign wealth investment vehicle, set about looking for a new managing director, it faced a problem: half the senior figures in public policy with any experience in finance had already been ousted.

It settled upon one of the few public sector chief executives in Malaysia still standing with any credibility: Datuk Shahril Ridza Ridzuan, CEO of the Employees Provident Fund.

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Datuk Shahril Ridza Ridzuan 

Shahril was interviewed at length in Euromoney’s April edition, where he spoke about the fund’s ESG ambitions, and its attempts to bring Islamic finance into the institutional rather than just the retail mainstream. The EPF is the biggest pension fund in the country by far, with RM768.51 billion (just under $200 billion) under management at the end of 2017, with assets equivalent to more than half the capitalization of the Malaysia Stock Exchange.

As one of the few major institutions that seems to have escaped connection with the 1MDB scandal, and with scandal in general – one allegation apart, which the EPF says is a fraud and has referred to the police – it is little surprise the EPF was tapped for the Khazanah role. But it raises two questions: what it means for Khazanah, and what it means for the EPF.

Khazanah is at its heart a holding vehicle for Malaysian state assets. For much of its history its role has been to steward those assets, to revamp nationally important companies where necessary, and to get them running in a way that creates maximum wealth for the country.

But the GLC Transformation Programme, as Khazanah’s mandate was named at launch in 2005, was completed in July 2015, and in recent years Khazanah has become more of a sovereign wealth fund. It took a pre-IPO position in Alibaba Group, then participated in the latest funding round of Ant Financial.

It has also invested in Parkson, the Chinese retailer, and in China Galaxy Securities, which helped pave the way for a joint venture between China Galaxy and CIMB Group.

But even these deals should be seen in the context of Malaysian nation-building: part of the Alibaba deal involved the Chinese company setting up its first electronic world trade platform in Malaysia, for example, which in turn has led to the development of a regional e-commerce and logistics hub in Kuala Lumpur International Airport’s digital free trade zone, involving Alibaba’s logistics subsidiary Cainiao Smart Logistics Network.

This evolution took place after Mahathir Mohamad stepped down from power the first time in 2003, and he didn’t much like the change, feeling that its principal role should be to support the nation’s homegrown companies rather than seek returns elsewhere. Mahathir has now been named chairman of the fund – it was previously Najib Razak until he was ousted as Prime Minister in May. Mahathir accepted the resignation of the entire Khazanah board on July 26.

It is widely expected that Shahril will be briefed to make Khazanah more like it used to be – a sort of national steward – and also that it will sell many of its holdings, both foreign and domestic, in order to bring down debt related to 1MDB.

In order to do so, Shahril will need a good relationship with whomever replaces him at the EPF, since that’s arguably the most likely buyer of anything Khazanah wants to sell. And that’s the other question: who replaces him at the EPF?

The pension fund is enormously important as it touches nearly every Malaysian and has a more direct impact on their quality of life than any other institution in the country. Having avoided the political storms around it for years, it would not be a surprise to see the fund promote from within.