This article first appeared in The Edge Financial Daily on April 24, 2018
KUALA LUMPUR: Kumpulan Wang Persaraan (Diperbadankan) (KWAP) is looking inwards to focus on the domestic property market as it offers better returns, said its chief executive officer (CEO) Datuk Wan Kamaruzaman Wan Ahmad.
“We currently have a presence in 31 countries, with more focus on the UK and Australia. Our aspiration is to have a bigger international [property] exposure, but of course it depends on the opportunities. Our focus remains on the local market [for now],” he told a news conference to announce the country’s second-largest pension fund’s annual investment performance for the financial year ended Dec 31, 2017 (FY17) yesterday.
“When we buy and lease back the property [overseas], it is hard for us (KWAP) to get a minimum return of 5% while the local opportunities can give us that kind of returns. Why should we diversify our business overseas when the returns in the local market are better?” he said.
The fund in the fourth quarter of last year set up a new property unit, KWAP Real Estate Sdn Bhd (KWEST), that will serve as its prime investment platform to tap into opportunities and invest in property development projects.
KWEST’s investment strategies and priorities are set to execute growth through partnerships and selected projects, working on innovative property developments aligned to KWAP’s environmental, social and governance practices.
As of Dec 31, 2017, 87% of KWAP’s property investments were in the local market and the remaining 13% were foreign properties.
In March last year, KWAP bought eight parcels of land in Phase 2A of Seri Tanjung Pinang 2 (STP2A) within Penang’s Tanjong Tokong district, being developed by Eastern & Oriental Bhd (E&O). The fund is paying RM766.02 million for 20% of the 760 acres (307.56ha) being reclaimed for the project.
As part of the land purchase, KWAP will take a 20% shareholding in Persada Mentari Sdn Bhd, an indirect subsidiary of E&O, that is undertaking the development. The deal marks KWAP’s first equity participation in an ongoing property development.
The reclamation of the parcel bought by KWAP is expected to be completed no later than March 31, 2019.
“We should be obtaining the land title sometime this year for the STP2A project,” he said.
In January 2016, KWAP completed the purchase of a 1.25-acre parcel in Persiaran Stonor here from the federal government for RM140 million. In 2015, the fund bought a 0.72-acre freehold parcel in Jalan Changkat Kia Peng here for RM87.92 million from Guocoland (M) Bhd.
On its financial highlights for 2017, KWAP registered a gross income of RM9.03 billion — the highest since its inception in 2007, from RM6.36 billion a year earlier on the back of higher investment income.
Wan Kamaruzaman said investment income remained the highest contributor to the fund in FY17 at 69%, followed by employers’ contribution at 27% and the portion from the federal government made up the remaining 4%.
The overall gross return on investment grew marginally to 5.77%, from 5.35% in the previous year.
“We will continue seizing new opportunities that could help us grow the fund, without compromising our risk appetite.
“We like the banks and telecommunications sectors as they are looking good and robust. We also like the technology sector although it has gone through some corrections. However, there are not many local technology companies [to invest in] at this point of time.
“We are adopting the total return approach as our primary performance metric, a more dependable method for retirement income strategies and in mitigating certain risks to generate consistent returns,” he said.
Wan Kamaruzaman also said in view of the global market outlook, KWAP is reviewing its strategic asset allocation to ensure it remains dynamic and in tune with the fund’s long-term investment aspirations.
KWAP’s current asset allocation comprises a 46% portion for fixed income, 40% in equity, and 14% in alternative investment. Its property investments are parked under its alternative investment segment.
“The breakdown of our alternative investment is the property sector (10%), private equity (3%) and infrastructure (1%),” he said, adding that KWAP is seeking to expand its assets under management to RM150 billion by year end from RM140.80 billion as at end-2017.