KUALA LUMPUR (July 31): The Retirement Fund Inc, better known as KWAP, aims to double its exposure in the private market to slightly above 20% by 2025, as part of its strategy under the Teras 5 programme.
For the financial year ended Dec 31, 2023 (FY2023), KWAP’s investments in the private market — involving three asset classes, namely property, private equity and infrastructure — made up RM20.8 billion or 12.3% of its total investment assets, while the remaining 87.7% or RM149 billion were public investments.
“We hope that the size of the private market will be a lot larger going forward, and that will possibly represent a lot more opportunities for ourselves, as well as our counterparts in other institutions to have opportunities to partner with us and invest together with us within the domestic space,” KWAP chief executive officer Datuk Nik Amlizan Mohamed told a press conference on Wednesday.
For FY2023, KWAP’s private equity portfolio delivered a time-weighted rate of return of 7.9%, while the infrastructure and real estate portfolios achieved 5.2% and 3.5% returns, respectively.
To support the exposure target, KWAP has also committed to strengthening Malaysia’s venture capital (VC) ecosystem through the Dana Perintis initiative launched in 2023. Of the total allocation of RM500 million, half of it is for Malaysia-focused VC funds, while the other half is for direct investments into promising Malaysian startups.
While acknowledging that Malaysia’s VC ecosystem is still at its nascent stage, KWAP chief investment officer Hazman Hilmi Sallahuddin said there are pockets of opportunities within the space, as more local startups are coming up.
“We try to play with a little bit higher risk, but as a pension fund, we still need to be prudent.
“As part of how we manage our risk appetite — because VC has a very high risk — the exposure we set for VC is no more than 1.5% of our total fund size,” Hazman Hilmi added.
Foreign investment exposure to increase to 30%
Meanwhile, in terms of geographical exposure, he said that KWAP aims to increase its international investment exposure to 30% by 2025. However, he maintained that this does not mean that KWAP will reduce its domestic investments, but rather, the pension fund will be increasing its investments overseas more substantially, to achieve the desired 70:30 ratio.
“We are currently on track (to achieve that target). The local market is much better than before, but in the long term, we aim to balance our investment exposure to 70% local and 30% international, which we believe is more sustainable,” Hazman Hilmi said.
“I believe it’s essential for us to have a more sustainable strategic asset allocation, which is why we have chosen the 70:30 ratio. While both our domestic and international investments are increasing in value, the share of international investments is growing,” the pension fund’s investment chief added.
As of FY2023, KWAP remained as a key investor in Malaysia, with 75.6% of its investment assets invested locally, while the balance 24.4% was invested in international markets.