KWAP seeks higher returns
RM140bil fund to review asset allocation as returns from fixed income are too low
KUALA LUMPUR: Retirement Fund Inc (KWAP) is planning to allocate more funds to the private investment space to get better returns amidst the low interest rate environment.
KWAP said more money could be allocated to property development, private equity and infrastructure projects.
The fund registered a gross income of RM9.03bil last year, the highest since its incorporation in 2007 and on a year-on-year basis, KWAP’s gross income grew 42%.
KWAP has direct stakes in three development projects, including a 20% stake in Persada Mentari Sdn Bhd, a property development vehicle to develop phase 2A of Sri Tanjung Pinang 2 (STP2), Penang.
Chief executive officer Datuk Wan Kamaruzaman Wan Ahmad said KWAP was also looking at a slightly higher allocation of investments in the listed equity space.
“KWAP will be reviewing its strategic asset allocation soon, in view of the global outlook of the market.
“This is to ensure that it remains vigorous and dynamic, while in tune with KWAP’s long-term investment aspirations and the current realities.
“We will continue to seize new opportunities that could help us grow the fund, without compromising our risk appetite,” he said during a media briefing on KWAP’s financial highlights for 2017.
Currently, KWAP’s asset allocation stands at 46% fixed income, 40% equity and 14% alternative investments compared with fixed income at 54%, equity at 36% and alternative investments at 10% in 2013.
Alternative investments comprise property at 10%, private equity at 3% and infrastructure at 1%.
“The shift works, as investments in the equity and alternative space have been successful, giving us the long-term returns that we want, within our risk appetite.
“We are also diversifying in the fixed-income space, not just government bonds and sukuk but into other segments within the fixed-income space that offer better returns and within other asset classes.
“The diversification will give us better returns, but it must be of moderate risk,” Wan Kamaruzaman said.
Last December, KWAP set up KWEST Sdn Bhd (short for KWAP Real Estate), which will serve as a prime investment platform for KWAP to invest in property development projects.
KWAP has also entered into a sale and purchase agreement with E&O Bhd for the acquisition of eight parcels of development land, totalling 33.43 acres in STP2, and is in the midst of obtaining the land title.
Apart from that, KWAP owns 1.25 acres at Jalan Stonor and a 0.72 acres at Jalan Kia Peng in Kuala Lumpur.
Wan Kamaruzaman said discussions to buy a minority stake in a foreign-owned insurance company
were ongoing, with such insurers expected to submit their divestment plan to Bank Negara by the end of this month.
This follows a directive by the central bank, which is looking to increase local participation in the insurance market.
Foreign insurers, namely AIA Bhd, Prudential Assurance Malaysia Bhd and Great Eastern Life Assurance (M) Bhd, have until June 2018 to meet a 30% local shareholding ruling.
KWAP is in talks with two of the three insurers, but Wan Kamaruzaman declined to name them.
It has been reported that KWAP has proposed to buy a stake in Prudential in a deal worth RM1.2bil to RM1.5bil.
KWAP’s total fund size in 2017 increased to RM140.8bil from RM125bil, while overall gross return on investment (ROI) advanced to 5.77%, outperforming 2016’s ROI by 0.42%.
Throughout the decade, the pension fund has been able to sustain an annual average gross ROI of 6.14%.
Total collection for 2017 also increased by 4.96%, which amounted to RM3.51bil, comprising RM3.01bil of pension contribution and RM500mil of government contribution. KWAP is targeting to have assets under management (AUM) of RM150bil this year. As at the end of last year, AUM stood at RM140.8bil.
Investment income remained the highest contribution to the fund in 2017 at 69%, followed by employers’ contribution at 27%, while the portion from the Government made up the remaining 4%.
“We are now adopting the Total Return approach as our sole and primary performance metric, a more dependable method for retirement income strategies and in mitigating certain risks that are inherent to the investment portfolio, while generating consistent returns.
“These are testaments to our commitment in delivering sustainable growth that remains integral in our investment strategy and invariably benefits the income of future pensioners,” Wan Kamaruzaman added.
KWAP manages contributions from the Government and relevant agencies to obtain optimum returns on its investments.
The fund will assist the Government in financing its pension duties.
In 2015, KWAP was officially appointed as an agent of the Government for the purpose of pension payments, gratuity and other benefits.