This article first appeared in The Edge Malaysia Weekly on July 13, 2026 - July 19, 2026
BUY quoted shares and hedge the exposure risks with a put and call option. If the share price falls below your cost, you can sell the shares back to the original vendor at cost plus an 8%-to-8.5% premium in a year’s time. Conversely, if the share price rises, the vendor can buy the shares back at cost plus an 8%-to-8.5% premium annually at any time.
In other words, you cover your downside risks and make an 8%-to-8.5% annual return on the investment — regardless of whether the company does well and whether its shares go up or down.
Sounds like a good deal? Not if you understand how the scheme really works.
In effect, you are:
• Lending money to the vendor and owning shares that you may not be able to dispose of easily;
• Forced to hold the shares for one year — even in a sell-off when prices are falling — because the vendor has a call option (to buy back the shares) that is exercisable at any time;
• Capping your upside at 8% to 8.5%. If the share price goes up, the vendor would exercise his call option to buy back the shares at cost plus an 8%-to-8.5% premium; and
• Most critically, you face UNLIMITED downside. Why? The shares that you now own are likely to be illiquid, without a market, because when the share price falls, by 30%, 50% or 90%, there is no way to compel the vendor to make you whole. The put option is worthless if the vendor is unable or refuses to pay.
This is the primary “hedging” structure adopted by Human Resource Development Corp (HRDC) for 78% of its RM757.3 million quoted share investments. And it is why HRDC is now sitting on RM85.8 million of derivative losses, which dragged the agency into a deficit of RM49.7 million in 2025 (scan the QR code to read the full article “Companies HRD Corp has invested in”).
HRDC is the government agency mandated to manage the human resources development fund to train and reskill employees. It’s a simple “business model”. Basically, it collects levies from employers and then disburses the money collected as financial assistance grants for approved training programmes. It also invests surplus funds in quoted shares, bonds and unit trusts to earn some returns to pay for operating expenses.
Investing in equity is inherently risky and one is compensated by the potential for unlimited upside gains. Using this structure, however, HRDC invested in risky quoted shares, forgoing all the potential gains by capping its returns at a maximum return of only 8%-to-8.5% per year — but taking all the downside risks. If the objective is to minimise risks, Malaysian Treasury Bills and Malaysian Government Securities currently offer yields of 3% (one year) to 3.6% (10 years), effectively at zero credit risk.
HRDC is a custodian of public money collected for a specific statutory purpose. There is no question this equity scheme is clearly defective (as we have articulated) — it has capped upside gains and unlimited downside risks.
The question now is whether there will be accountability for what has happened to restore public confidence in its governance.
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