Amid lackluster market conditions, Malaysia’s retirement fund Kumpulan Wang Persaraan (KWAP) is expecting lower returns from its private equity investments this year expected in the range of 5 per cent this year against 6.8 per cent last year.
Private equity investments, which form less than 2 per cent of KWAP’s total assets, garnered a return of 6.8 per cent last year despite lower oil prices and a tepid local market. The country’s second largest pension fund has almost 90 per cent of its investments in fixed income assets and 10 per cent in alternative income.
“Five per cent is still a good return as compared to average returns in other countries in Europe,” KWAP CEO Datuk Wan Kamaruzaman Wan Ahmad said at a press conference to mark the launch of the Private Equity Forum 2016 in Kuala Lumpur.
Wan Kamaruzaman said, the prevailing market conditions in the region led to the lower returns. In fact, he added that for KWAP may earn lower returns on all domestic investments next year as well.
Global forecast for the Asian markets is currently negative on account of uncertainty in interest rates and a decline in the price of crude oil. With regard to Malaysia, Kuala Lumpur Composite Index declined 3.4 per cent in 2015 and 4.5 per cent in 2014. International Monetary Fund’s (IMF) Regional Economic Outlook for Asia and Pacific said that growth in the Asia-Pacific economies is expected to decelerate slightly to about 5.3 per cent during 2016–17.
Nevertheless, KWAP is looking at increasing its private equity investments to include consumer goods, logistics, education, technology and healthcare sectors. Going forward, the fund aims at increasing its alternative income investments to about 15 per cent from the current 10 per cent and the fixed income assets lowered to 85 per cent.
“Private equity has become a new normal in investment strategies, amid the current volatile and low interest rate environment,” Wan Kamaruzaman said.
Noting that $60 billion worth of private equity funds have been raised in Asia to date, he said that almost $5.7 billion of these funds were raised in Southeast Asia.
“We prefer strategies that focus on expansion and those that have an established cash flow, as they correspond with our risk appetite,” he said, adding that the pension fund is eyeing to also expand its logistics investments.
KWAP has about 7 per cent of its investments in real estate and 1 per cent in infrastructure. Geographically, 50 per cent of its investments at in Asia, 17 per cent in US and 6 per cent in Australia.
Currently,the Malaysian government is driving to bring investments home to strengthen the Ringgit so there may be a freeze on overseas investments.
KWAP recently sold its $325.3 million UK property , an office block at 88 Wood St. in London. It booked a profit of about $60 million in the sale that was closed in April this year.