Khazanah Nasional
Khazanah Nasional Berhad is the sovereign wealth fund of the Government of Malaysia, entrusted with growing the nation's long-term wealth via distinct commercial and strategic objectives. Khazanah's commercial objective is to grow financial assets and diversify revenue sources for the nation, while its strategic objective is to hold strategic assets that bring long-term economic benefits. Khazanah is guided by its investment philosophy which emphasises attaining appropriate risk-adjusted financial returns, generating sustainable returns, and integrating ethical and responsible investing considerations.
 | |
| Type | Sovereign wealth fund investment company |
|---|---|
| Industry | Sovereign wealth fund |
| Founded | 1993 |
| Headquarters | Kuala Lumpur, Malaysia |
Key people | Muhyiddin Mohd Yassin, Chairman Shahril Ridza Ridzuan, Managing Director |
| Revenue | Profit from operations RM7.36 billion (2019) |
| Total assets | NAV (Commercial Fund): RM73.1 billion (2019) |
| Owner | Government of Malaysia |
| Parent | Malaysian Ministry of Finance |
| Subsidiaries | |
| Website | www |
Khazanah is a member of the International Forum of Sovereign Wealth Funds,[1] which maintains and promotes the Santiago Principles on best practices in managing sovereign wealth funds. It is also a signatory of the United Nations-supported Principles for Responsible Investment (UNPRI), signatory of the Malaysian Code for Institutional Investors and a member of the Institutional Investor Council Malaysia (IIC), member of FCLTGlobal (Focusing Capital on the Long Term), and signatory of the Malaysian Anti-Corruption Commission's (MACC) Corporate Integrity Pledge.
Khazanah was incorporated under the Companies Act, 1965 in Malaysia on 3 September 1993 as a public limited company and commenced operations a year later. Khazanah is owned by the Malaysian government and administered by the Minister of Finance Incorporated, except for one share held by the Federal Land Commissioner. It is governed by a board of directors comprising representatives from the Government and the corporate sector with diverse professional backgrounds and expertise.
Financial highlights
In 2019, Khazanah achieved a profit from operations of RM7.36 billion compared to a loss of RM6.271 billion [2] in 2018. Gains on divestments increased to RM9.9 billion compared to RM1.4 billion, while impairments were at RM4.9 billion from RM7.3 billion the previous year. Khazanah declared a dividend of RM1.0 billion for 2019.
Khazanah strengthened its financial position with expenses reduced by 28.2% to RM484 million, compared to RM674 million in 2018. This equates to 35 basis points (“bps”) as a percentage of assets, compared to 50bit/s the previous year.
Debt was reduced by 17.0% to RM45.8 billion from RM55.2 billion in 2018, while Realisable Asset Value cover improved to 3.0 times from 2.4 times. The Commercial Fund, which is an inter-generational wealth fund, generated a time-weighted rate of return of 8.3%, surpassing the long-term targeted rate of return equivalent to the Malaysian Consumer Price Index (“CPI”) + 3% on a five-year rolling basis. The Commercial Fund's Net Asset Value (“NAV”) stood at RM73.1 billion, as at 31 December 2019.
The Strategic Fund achieved financial and strategic outcomes for specific assets despite the sluggish market in 2019. It generated an overall return of 2.9%, versus its targeted rate of return of the 10-year Malaysian Government Securities (“MGS”) yield on a five-year rolling basis.
History
Incorporation
Khazanah was incorporated under the Companies Act 1965 on 3 September 1993 as a public limited company and commenced operations a year later. Except for one share owned by the Federal Land Commissioner, all the share capital of Khazanah is owned by the Minister of Finance Incorporated, a body incorporated pursuant to the Minister of Finance (Incorporation) Act 1957.
A refreshed mandate
In 2018, the Government of Malaysia initiated a corporate restructuring and reorganisation of Khazanah, which involved leadership changes, a refresh of its mandate and objectives, and a review and revaluation of its investments.[3] The leadership changes saw the appointment of Datuk Shahril Ridza Ridzuan as managing director.[4]
Khazanah's mandate is to grow Malaysia's long-term wealth. Grow in this context is to sustainably increase the value of investments while safeguarding financial capital injected into the fund. long-term refers to a period spanning generations and focuses on ensuring future generations’ ability to meet their needs. Wealth refers to the value of Khazanah's financial assets and economic development outcomes for the nation. To achieve the mandate, Khazanah will pursue the following investment objectives:
- Commercial objective - achieve optimal risk-adjusted returns, to grow financial assets and diversify sources of revenue for the nation.
- Strategic objective - Undertake strategic investments with long-term economic benefits for Malaysia or Malaysians, including holding strategic national assets
Leadership and governance
- Board of directors
Khazanah is governed by its board of directors, which is led by Tan Sri Muhyiddin Mohd Yassin, Prime Minister of Malaysia, as chairman of the board. The board members comprise representatives from the Government as well as the corporate sector with diverse professional backgrounds and expertise. The managing director reports to the board.
| Chairman | Year appointed | Managing director | Year appointed |
|---|---|---|---|
| Tun Dr. Mahathir Mohamad | 1994 | Tan Sri Dato' Mohd Sheriff Mohd Kassim | 1994 |
| Tun Abdullah Ahmad Badawi | 2003 | Dato' Anwar Aji | 2003 |
| Dato' Sri Mohd Najib Abdul Razak | 2009 | Tan Sri Datuk Wira Azman Hj Mokhtar | 2004 |
| Tun Dr. Mahathir Mohamad | 2018 | Datuk Shahril Ridza Ridzuan | 2018 |
| Tan Sri Muhyiddin Mohd Yassin | 2020 | Datuk Shahril Ridza Ridzuan | 2018 |
The board meets regularly and is ultimately accountable and responsible for Khazanah's overall governance and performance.[5] A Board Charter sets out the roles and responsibilities of the board in overseeing the management of Khazanah.
Khazanah is guided by a framework that establishes a responsibility, authority and governance structure. Its Governance and Risk Management Framework comprises a Risk Management Policy, Schedule of Matters for the Board, Limits of Authority for the management, Code of Conduct for employees, and operational Policies and Procedures.
- Board members
Chairman:
- Tan Sri Muhyiddin Mohd Yassin, Prime Minister of Malaysia
Directors:
- Tengku Dato’ Sri Zafrul Tengku Abdul Aziz, Minister of Finance of Malaysia
- Dato' Sri Mohamed Azmin Ali, Senior Minister and Minister of International Trade and Industry of Malaysia
- Mr. Goh Ching Yin, Chairman of Executive Committee (EXCO), Member of Nomination & Remuneration Committee (NRC) and Member of Audit & Risk Committee (ARC)
- Dato’ Mohammed Azlan Hashim, Chairman of Nomination & Remuneration Committee (NRC) and Member of Executive Committee (EXCO)
- Dato’ Zainal Abidin Putih, Chairman of Audit & Risk Committee (ARC)
- Mr. Lau Seng Yee, Member of Executive Committee (EXCO) and Member of Nomination & Remuneration Committee (NRC)
- To’ Puan Azian Mohd Aziz, Member of Audit & Risk Committee (ARC)
- Datuk Shahril Ridza Ridzuan, Managing Director of Khazanah Nasional and Member of Executive Committee (EXCO)
- Management team
- Managing Director – Datuk Shahril Ridza Ridzuan[4]
- Chief Investment Officer – Tengku Dato’ Sri Azmil Zahruddin Raja Abdul Aziz
- Executive Director, Head, Corporate & Support Services, Company Secretary and Head, Legal – Dato' Mohamed Nasri Sallehuddin
- Executive Director, Head, Public Markets – Datuk Hisham Hamdan
- Executive Director and Chief Financial Officer – Faridah Bakar Ali [6]
- Head, Governance, Risk & Compliance – Suhana Dewi Selamat [6]
- Executive Director and Head, Strategic Human Capital Management – Latifah Daud
- Executive Director and Head, Special Projects Office – Mohd Izani Ashari
- Executive Director and Head, Energy & Infrastructure – Amran Hafiz Affifudin
- Executive Director and Head, Private Markets (North Asia) – Bryan Lim
- Executive Director and Head, Private Markets and Head, Financial Institutions Group (FIG) – Serena Tan Mei Shwen [6]
- Head, CIO’s Office - Dr. Farid Mohamed Sani
- Head, Real Assets - Selvendran Katheerayson
- Head, Infrastructure - Wong Shu Hsien
- Head, Special Situations – Shahin Farouque Jammal Ahmad
- Head, Research - Nicholas Khaw
- Head, Strategy - Nik Sharifidin Nik Mohamed Din
- Head, Corporate Communications - Mohd Raslan Md Sharif
Investments
Khazanah will pursue its overall mandate through a two-fund investment structure. The two funds, the Commercial Fund and the Strategic Fund, are established with distinct objectives, policies and strategies, and are to be managed separately via separate investment management divisions.
Commercial Fund
An inter-generational fund that seeks to generate risk-adjusted returns on a long-term basis, to grow financial assets and diversify sources of revenue for the nation. The Fund targets to generate a return of at least the Malaysian Consumer Price Index plus 3% on a 5-year rolling basis with a moderate risk tolerance level as follows:
- underperformance no more than 10% chance of a 30% annual loss
- funding no more than 10% chance of not achieving 1.5% portfolio yield.
The return target and risk tolerance are set by the Board and may be reviewed from time to time. The annual returns of the Fund will be reinvested into the Fund and distributed to the Government based on an identified payout ratio. any additional inflow of capital will be subject to approval of the Board. The Fund has the flexibility to invest across multi-asset classes in accordance to the strategic asset allocation and different geographies with a preference for active and direct investment strategies.
Strategic Fund
The Strategic Fund is intended to be a developmental fund that seeks to undertake strategic investments, with long-term economic benefits, including holding strategic national assets. It targets to generate a return of at least the yield of the 10-year Malaysian Government Securities on a 5-year rolling basis and achieve its strategic objectives. Its return target is set by the Board and may be reviewed from time to time.
The Fund intends to be self-sustaining, with the primary source of funding for the Fund's activities to be generated from any internal surplus; any additional capital required above this available amount will be subject to the approval of the Board. The Fund will invest and manage strategic assets as defined and classified below:
- Strategic assets - Domestic assets of national importance, such as critical infrastructure. > Held on behalf of the Government of Malaysia for the long-term.
- Developmental assets - Long-term developmental investments with potential to deliver high economic impact. > These assets will be developed to achieve commercial viability at which point value realisation options may be considered.
- New strategic assets - Either national infrastructure related or developmental in nature with clearly defined economic benefit targets and commercial viability plan identified.
The Fund will pursue opportunities with the potential to become commercially viable or will earn sufficient returns to operate without recourse to its shareholders. It is anticipated that larger-value transactions will generally be undertaken by the Fund. It has the flexibility to invest across capital structures. There is a preference for co-investment and partnerships in entering all new developmental investments. Value realisation options can be considered when possible, on commercial arms’ length basis. The investment themes will be reviewed on a regular basis based on global economic megatrends and national needs, and investment assets within the portfolio will be similarly reviewed and assessed for relevance to strategic targets.
References
- International Forum of Sovereign Wealth Funds. "IFSWF Our members". Archived from the original on 27 September 2016. Retrieved 24 September 2016.
- "Khazanah Annual Review 2020" (PDF). Khazanah Nasional Berhad. 2 March 2020.
- "Khazanah Annual Review 2019 presentation".
- "Khazanah appoints Datuk Shahril Ridza Ridzuan as Managing Director". Khazanah Nasional Berhad. 3 August 2018.
- "Our Governance and Accountability Framework" (PDF). The Khazanah Report 2017. 1 May 2018.
- "Khazanah announces appointments and changes to refresh and further strengthen Senior Leadership Team". 28 April 2017.
