Khazanah Nasional Bhd’s managing director Datuk Amirul Feisal Wan Zahir had big shoes to fill when he took over the reins of the sovereign wealth fund on July 16, 2021. Taking the helm just as the country was emerging from a nationwide full lockdown, he was prepared for the huge responsibility that he was about to shoulder. Throughout the year, however, stronger headwinds began to blow.
“There’s one thing that I saw which was even more pronounced, which is basically the market and economic volatility, which we knew were coming,” says Amirul Feisal. “But then we saw Russia’s invasion of Ukraine and interest rates going up pretty rapidly in 2022.”
Amid these developments, the challenges faced by Khazanah and the strategies it must implement to achieve the nation’s aspirations have evolved. But its purpose and nation-building mandate remains unchanged to deliver sustainable value for Malaysians.
With its Advancing Malaysia strategy, Khazanah’s responsibility is to deliver sustainable economic and societal benefits for the nation through its investments. It is a challenging task, having to manage its investment exposure across the group and navigate the new turbulent market environment rocked by rapid interest rate hikes across the world, China’s slower economic growth and geopolitics, which has in turn restructured supply chain systems.
All this has negatively impacted portfolio performances, not just Khazanah’s, but also most investment managers both locally and globally.
Malaysia, at least, is seeing the return of political stability and clearer direction of policies after last November’s polls. This should put the nation back in the sight of foreign investors. “The general election helps a lot because we need that stability. By having that, a lot of things that we plan can happen [in the] long term rather than being hampered by uncertainty, allowing us to deploy more patient capital. This is a key strength of Khazanah and allows us to take a longer-term view on investments, and to take a bit more risk in investing for Malaysia,” says Amirul Feisal.
For instance, one element of Khazanah’s Advancing Malaysia strategy that is long-term in nature is Dana Impak, a RM6 billion over five years allocation, which aims to increase Malaysia’s economic competitiveness and build national resilience, while delivering socio-economic impact to the rakyat.
Dana Impak is a continuation of Khazanah’s involvement in strategic investments for Malaysia, focused on six themes based on issues and challenges facing the nation. These themes include Food and Energy Security, Building Climate Resilience, Digital Society and Technology, Decent Work and Social Mobility, Competing in Global Markets and Quality Health and Education for All.
Equally as important to Khazanah is its goal of creating a sustainable future. The fund aims to institutionalise environmental, social and governance (ESG) principles in everything it does, from managing investments to operating as a firm and how it supports and contributes to the nation’s societal development objectives. It aspires to play a leading role in guiding Corporate Malaysia on its transition journey towards cutting companies’ respective environmental impact, reducing societal harm and driving sustainable growth. In 2022, the fund announced its shareholder expectations to its respective investee companies, signalling its intent to prioritise sustainability issues.
The volatility that roiled global markets battered most investment companies last year. Khazanah, however, remained invested. The fund was cushioned to an extent by its diversification strategy in the years prior, having made programmatic deployments into public equity (developed markets), private equity and real assets at attractive valuation entry points. “So, we had certain asset classes like real assets, and private equity offset the drop in the public markets,” Amirul Feisal explains. This meant that Khazanah was able to stay in the game and continue to take advantage of opportunities.
Having further built portfolio resilience, Khazanah also maintained discipline in its value creation and monetisation efforts. This enabled it to capture the value of its investments and fund its deployment programmes. Amid the choppiness in the global landscape, Khazanah witnessed some key highlights from its efforts last year, not least the March listing of integrated dairy firm Farm Fresh Bhd — the largest initial public offering on Bursa Malaysia since June 2021. In November, it saw the successful completion of the CelcomDigi merger, forming the largest telecommunications company on Bursa Malaysia.
Khazanah also came up with and made public its “Shareholder Expectations and Investment Stewardship” document. This living document outlines Khazanah’s expectations as a shareholder towards its investee companies. It seeks to ensure these firms generate long-term shareholder value, and highlights the importance of the chairperson’s role in setting the right culture, among others. On top of that, it seeks the equitable treatment of shareholders, and sets out guidelines with which it will exercise its shareholder right to vote at these companies’ general meetings.
Among the key areas that Khazanah is prioritising significantly this year is this building of its local investee companies. It wants these firms to innovate and embrace digital transformation. Amirul Feisal cites CIMB Group Holdings Bhd as an example. “Banking is no longer traditional banking. You need to use technology, which they are doing. They have Touch ’n Go, which is one of the largest e-wallets you can have, and they’ve begun to use that as a platform for more products and services.”
He also touches on the major change at Tenaga Nasional Bhd, which is investing around RM20 billion per annum over the next 28 years to speed up its energy transition as part of its sustainability goals. “How do we have a just energy transition and have it well-known to the market? That’s a big focus for us in order to come up with that story so investors won’t be penalised by the push in the use of fossil fuels as an energy source.”
Meanwhile, Dana Impak reached execution stage this year. Earlier this month, Khazanah launched the Future Malaysia Programme aimed at giving the local start-up ecosystem — of entrepreneurs, start-ups, and venture capital and corporate venture programmes — a leg up. It aims to deploy an initial amount of approximately RM180 million by working with established venture capital managers, corporate venture programmes, and open innovation platforms to boost the Malaysian ecosystem.
In line with this, Khazanah has partnered with Gobi Partners and 500 Global, both of which boast an extensive investing track record and expertise in value creation in Malaysia. It is teaming up with global innovation platform Plug and Play to set up a Malaysia-based corporate innovation and accelerator programme with CelcomDigi as an anchor partner. It will also continue to identify venture capital managers and established ecosystem players as potential partners. The plan is to deploy capital through its partners as well as directly into firms that run on sustainable business models, exemplified by Carsome and Farm Fresh, which are an essential source of innovation, employment and investment for the nation.
According to Amirul Feisal, as Dana Impak explored themes across Malaysia, talent was a recurring issue. As such, Khazanah seeks to establish a sustainable talent pipeline within the talent upskilling and reskilling ecosystem as technological innovation and advancement continues to accelerate. For one, Khazanah is committed in driving the Technical and Vocational Education and Training (TVET) space, particularly in the digital coding and creative fields. It is hoped that the skilled talents that emerge will be able to contribute to Malaysia’s future-ready aspirations.
Khazanah also recently inked a joint venture with Sunway Education Group to set up 42 Malaysia, a peer-to-peer computer science school, with the aim of developing 10,000 skilled tech talents nationwide within the next 10 years. It is now looking at ways of expanding the initiative across the country to make the curriculum available to everyone, including the B40 segment, as well as open it up to non-graduates such as school leavers and career changers.
The aim is to lead the TVET agenda by fostering stronger synergies with the Malaysian government linked companies (GLC) to provide Malaysians in-demand skills for access to high quality jobs, leading to improved livelihoods and competitive industries that drives economic growth for Malaysia.
The sovereign wealth fund is also looking to tackle the issue of food security under its Dana Impak. Among its first projects in the space is a nationwide survey of more than 2,500 agriculture smallholders, seeking to understand issues faced by these smallholders. The data from the survey, which will be completed in the second quarter of 2023, will be made publicly available. By analysing these multiple perspectives, Khazanah hopes to help the relevant stakeholders develop the food industry as a catalyst for growth through exports, while enhancing productivity to improve and maintain food availability. On the other hand, Khazanah also supports stakeholders in agri-tech and food-tech, which would be able to power the sustainable production of food for Malaysia.
A crucial part of Khazanah’s Dana Impak is the impact it generates. To this end, Khazanah has develop an impact assessment framework called the SEMARAK initiative to monitor the performance of its investments from an impact perspective, starting with 42 Malaysia. This framework will be refined, following periodic reviews, as it is applied across the board.
2023 is expected to be another challenging year. Low interest rates are not on the cards, with the US Federal Reserve seen pushing borrowing costs to 5.0% to 5.1% even at the risk of a recession, and that is expected to lead to a global slowdown. Malaysia is relatively sheltered as Bank Negara has favoured a more gradual pace of tightening compared with its peers, while government subsidies have more or less shielded households from spiralling prices.
In the light of the global challenges, Khazanah’s plan this year is to remain an active investor and focus on local and regional markets. As it rebalances its portfolio towards strategic asset allocation, it also continues to assess global market developments to seek opportunities in public equity (developed markets), private equity and real assets.
“Going forward, in terms of general investments, we’re looking at where we can have resilience,” says Amirul Feisal. “So we’re hoping that the China market opens up as there’s some benefit from that, which counters the slowdown that you might see in the rest of the world and any industries would be positively impacted by that.” Over the longer term, he sees deployment opportunities in the areas of sustainability and energy transition.
In line with the Malaysia Madani concept, Khazanah’s nation-building efforts are governed by the foundations of sustainability and good governance. Amirul Feisal likens the Advancing Malaysia strategy to building a house. “The floor is building national resilience and the ceiling is about competitiveness, and about growth. So when you look at what we do in terms of Advancing Malaysia, it is basically raising the floor and raising the ceiling. And we do it in a sustainable fashion and with proper governance.”
Khazanah’s strategy and initiatives also correspond with the pillars of the Madani Budget, which are inclusive and sustainable economic growth, restoring confidence in institutions and governance and combating inequality through social justice. There are specific items in the national spending framework that it can support, such as the targeted funding of RM1.5 billion by government-linked companies for local start-ups that are innovative and possess high-growth potential. Additionally, the fund wants to provide job placements and upskilling programmes, as well as ensure its investee companies innovate and prosper to create more job opportunities.
“Aside from this, Khazanah has set its sights on preserving Malaysia’s national heritage by leading the formation of the National Heritage Fund to attract private sector and philanthropic participation, in partnership with its impact organisation, Think City. This public-private-philanthropic partnership initiative aims to breathe life back into historic heritage buildings. “This is very important because when we have a building such as the Sultan Abdul Samad building…and the state of it is not the best, we want to rejuvenate it,” says Amirul Feisal. “So, we want to ensure that we preserve our historical buildings and cultural heritage to restore our national pride. That’s about advancing the country.”
“Ultimately, all our efforts from corporate value creation to Dana Impak to our global investments to our corporate responsibility initiatives are for the larger goal of Advancing Malaysia,” according to Amirul Feisal. “And given our position at the intersection of public, private and the rakyat, it won’t just be Khazanah the fund, we will leverage on the expertise and experience of our family of entities such as Yayasan Hasanah, the Khazanah Research Institute and Think City as well. And as we know, Advancing Malaysia will require an all-of-Malaysia approach and we certainly welcome collaborators and partners — public, private, philanthropic — who share our goals and objectives in our journey. These are complex issues, but we think with our very best efforts, we can create the impact we seek.”