Be aware of risks in sovereign fund, Wong cautions
Bawang Assan assemblyman Dato Sri Wong Soon Koh cautions the government to always be on guard against risks when managing the state’s sovereign wealth fund.
He said the fund may have been modelled after the Government Pension Fund Global of Norway, which is the world’s largest sovereign wealth fund widely recognised with the highest standards of governance.
He, however, pointed out that the Norway Government Pension Fund Global suffered a loss of 653 billion Norwegian kroner (US$75.7 billion) in just the first quarter of 2022, equivalent to a -4.9 per cent return.
He said the Norway Fund had also sustained a loss of 1.68 trillion Norwegian kroner (US$174 billion) in the first half of 2022 as stock markets broadly saw a tumultuous six months.
“As we have been told, a sovereign wealth fund is a state-owned investment fund operated and managed on behalf of the people, comprising money generated by the government, often derived from the country’s surplus funds.
“The funds are to be invested globally in real and financial assets, such as stocks, bonds, real estates, precious metals or in alternative investments such as private equity fund or hedge fund.
“But it must be pointed out that there are risks involved in investments, as stocks and bonds could react violently to global recession fears,” he said when debating on the Sarawak Sovereign Wealth Future Fund Board Bill 2022.
Wong pointed to the Temasek Holdings (Private) Limited, owned by the Singapore government to operate its sovereign wealth fund and incorporated on June 25, 1974, which owns and manages a net portfolio of S$403 billion as of 2022, with S$37 billion divested and S$61 billion invested during the year.
He said the government of Singapore also owns GIC Private Limited, incorporated in 1981 which manages about US$881 billion (S$1 trillion) of assets as of 2022.
He added that in mid-2022, Temasek reported a sharp drop in returns and warned that it would be extremely cautious about new investments, amid economic downturns.
“At the same time, GIC also warned of profound uncertainties as inflation rises.
“Therefore, even when these funds are well managed, they are still subjected to market risks, resulting in the loss of the wealth of the state.
“We must therefore be weary of such market risks and be on guard against such risks when managing our sovereign fund,” he said.
Wong noted that Malaysia has two sovereign wealth funds, both at federal level, and there are many issues surrounding both funds.
He said one fund, Khazanah Nasional, was set up nearly three decades ago and had RM106 billion of assets under its management as of end 2021.
“It is supposed to operate within the framework of a clearly defined mandate that is aligned with the national objectives.
“The other fund is scandalridden 1Malaysia Development Berhad (1MDB), which was declared insolvent in 2018. Ths fund is under global scrutiny for multi-billion losses,” he said.
Wong pointed that even Khazanah is not necessarily a good template for good governance either.
He said Khazanah has often been used by the government to prop up local politically connected companies, reducing its returns.
“The issues of transparency and responsibilities are at stake. Once our state Sovereign Fund is set up, we should never allow the Fund to be politically manipulated.
“It must be managed by a proficient group of wellqualified professionals with the highest degree of transparency and accountability,” he cautioned.