Khazanah’s mandate – back to basics
> Should be one separated from politics and of transparency and accountability
PETALING JAYA: Losses in investments by state investment arm Khazanah Nasional Bhd drove politicians into a frenzy last week, claiming deviation from mandate and dubious dealings, but as an investment arm what should be its mandate? How do we benchmark success or failure?
Asian Development Bank lead economist Jayant Menon told SunBiz in an email reply recently that sovereign wealth funds are a very heterogeneous group and therefore their purpose and mandates vary across countries and over time.
“In general, they should all aim to invest the surplus wealth of the country for the betterment of all of its citizenry, for their future.”
In the case of Malaysia, he said Khazanah, and the government-linked companies (GLCs) it supports, have an explicit role in promoting the affirmative action programme for bumiputras, but it did not materialise.
“The intention was to help create a new class of bumiputra entrepreneurs – first through the GLCs themselves and then through a process of divestment. Neither really happened.”
Citing the approach of using GLICs and GLCs as instruments of affirmative action as a “failure”, he said it indeed led to a rise in crony capitalism, regulatory capture and corruption.
“This is why loss-making companies continue to be subsidised by the government-linked investment companies (GLICs) and, when they fail, are bailed out at huge expense to the taxpayers. Khazanah itself has expended huge sums of money supporting the beleaguered MAB. Ministry of Finance Inc had reported 15 loss-making GLCs in 2015. And the list goes on.”
While the GLC Transformation Programme did succeed in making GLCs more market-oriented and competitive, Jayant said Khazanah does not play a good divestment role.
“When the programme was concluded in 2015, the share of GLCs in business increased, not decreased. Many of the GLCs that Khazanah invested in continue to crowd out private investment, while enriching a few at the cost of many.
“A lot of the problems associated with Khazanah and other GLICs have come from government being too directly involved in the running of these institutions, and the influence they could wield. I think there should be a clear separation of the two.”
Talk of deviation from mandate had led to the en masse departure of Khazanah’s board of directors, including long-serving managing director Tan Sri Azman Mokhtar, in a move that was said to facilitate the restructuring of the fund under the new government administration.
Azman, in his last message to the employees, denied any wrongdoing in losses incurred in the fund’s investments in UBS Bank and Indian ecommerce lingerie firm Zivame.
Jayant opined that the resignation of Azman and the whole Khazanah board members should have happened earlier, after news broke that funds from Khazanah were being used to pay for 1MDB debts.
“Bank Negara Malaysia was also implicated in a similar way, and the governor offered his resignation almost immediately. I don’t think that this will have any negative impact on the economy in the long run. In fact, it could well be a positive thing, since the prime minister has already indicated that the focus and direction of Khazanah and many GLCs need to be re-evaluated.”
Nonetheless, Khazanah is likely to cut its holdings in some GLCs following the revamp of its board.
The Institute for Democracy and Economic Affairs (Ideas) said to ensure high levels of transparency and accountability in bodies like Khazanah, institutions such as Parliament need to provide the check and balance. “A good example of this is the Government Pension Fund of Norway (Oil Fund), which is managed by Norway’s Ministry of Finance that ultimately answers to the Norwegian Parliament, as laid down under the Government Pension Fund Act. Making bodies like Khazanah accountable to Parliament, or Parliamentary Committees, is a first step in the right direction.
“In Norway’s Oil Fund, everyone can view and scrutinise every single one of their investments on their website. Everything is laid out in the open, true to its mandate of being a fund for the benefit of the Norwegian people. In Malaysia, we should try our hardest to emulate that as well.”
Ideas said the success of Khazanah’s investments should be viewed as a whole and a substantial amount of their investments were successful given that its net worth adjusted tripled within the 2004-2017 period.