This article first appeared in The Edge Financial Daily on November 30, 2017

KUALA LUMPUR: Malaysia’s sovereign wealth fund Khazanah Nasional Bhd slammed a Straits Times report yesterday for giving an “inaccurate and ultimately misleading picture” of its financial performance.

In a statement, it said the report, also picked up by other media outlets, chose to focus on a “narrow and incomplete set of indicators of financial performance”.

It said the net worth adjusted (NWA) value of its portfolio grew at an annual compounded return of 9.3% over the last 13 years, and not just 1% or 2.6% as implied by the article.

“The rate of total return as represented by [the] NWA growth is in line with relevant benchmarks, in particular, with the FBM KLCI which posted a total shareholder return of 9.4% per annum during the same period,” it said, referring to the period between May 2004 and December 2016.

The fund said the NWA value of its portfolio grew 3.1 times or 207% to RM102.1 billion from RM33.3 billion over that period. It also highlights its multipronged investment mandate that includes  investing for commercial returns as well as undertaking developmental initiatives on a national level.

“The latter includes the development of regional economic corridors, reforms of the education sector and the restructuring and catalysing of various economic sectors and national companies.

“The returns of these initiatives vary widely from low or even negative returns for more developmental activities, to significantly higher returns for our commercial and international operations, averaging at the said 9.3% per

annum NWA return,” it said.

Khazanah also said it channels the bulk of its returns into reinvestments rather than dividends, as it does not receive regular capital injections, unlike most sovereign or sovereign-linked funds.

“This need for a balanced reinvestment strategy for growth, development, and dividends is done in consultation with and approval of the board of directors and the government.”

“[We] need to ensure that returns are achieved with an appropriate level of risk undertaken,” Khazanah said, highlighting its asset cover stood at 2.96 times as at end-2016.

The Straits Times article, published yesterday, said Khazanah is under pressure to show higher returns to boost government coffers, and that senior state officials are lobbying for changes to its management and investment strategy.

It also highlighted between 2013 and 2016, the national wealth fund had paid out less than 1% a year in dividends, based on an average of RM825 million in dividends annually over the four years, from its RM145 billion worth of assets.

“The Straits Times understands there is a push by some within Prime Minister [Datuk Seri] Najib Razak’s vast circle of advisers to change Khazanah’s investment strategy, especially since the fund’s managing director, Tan Sri Azman Mokhtar, is due to leave in mid-2019, after a 15-year run at the helm,” the report stated.

“With regard to Khazanah’s leadership succession as referred to in the article, we wish to reiterate Khazanah has a well-established and orderly succession process, approved by our board of directors and in line with good institutional practice,” Khazanah said in response.