The Malaysian pension fund Kumpulan Wang Persaraan (Diperbadankan) (KWAP) is looking to extend its current environmental, social and governance (ESG) mandate to alternative investments, including real estate and private equity asset classes.
“We have made a lot of engagement with the industry on our ESG mandate. We have built ESG guidelines on the corporate level, investment and policy, fixed income and equity side. We will apply this to our alternative assets, property and private equity side soon,” said KWAP chief investment officer Nik Amlizan Mohamed.
KWAP CEO Wan Kamaruzaman Wan Ahmad said the pension fund plans to increase external international fund managers for its ESG allocation from four to six.
In total, KWAP has an RM3.8-billion ($940 million) allocation for its ESG mandate, RM3.3 billion ($820 million) of it for internal fund managers and RM520 million ($129 million) for both local and international external managers.
“Our intention was to give each external fund manager $100 million (RM800 million) to manage [for the international ESG investments]. We still have not fully outsourced this amount to the external fund managers for our international ESG portfolios,” added Wan Kamaruzaman.
KWAP will also look to pick up more equity stakes as it looks to increase its equity allocation from the current 40 per cent to 42.5 per cent.
“We are not significantly overweight in equities. On the fixed income side, we are very stable, along with cash – which makes up about 50 per cent of our asset allocation. Moving forward, we still have a bit of room to increase our equity allocation especially when you talk about the uncertainty in the global and domestic equity markets,” said Wan Kamaruzaman.
The pension fund declined to comment on the foreign insurer stake buy. To recap, the Malaysian central bank had announced a new directive last year where foreign insurers are not allowed to hold more than 70 per cent stake in their local operations.
On the US-China trade war, KWAP believes that Malaysia would be one of the beneficiaries as tariff hikes on specific industries would move the demand to other markets. Its chief investment officer Nik Amlizan Mohamed said: “For example, the Malaysian electronic companies would definitely benefit. We are positioning ourselves in those companies – but that’s amongst the strategies that we’re looking at.”
She added that earnings growth for Malaysian corporates is “plateauing” and noted that the growth rate is still a “high single-digit”.
“We are also taking into the consideration that recent changes, possible policy change and impact on some companies – those are not ascertained yet until the 100 days [after the new government installation] are over. Once the policymakers have stabilised we can then quantify the growth rate further.”
Established in 1991, KWAP is Malaysia’s second largest retirement fund and has total assets under management of RM140.8 billion ($34.8 billion), of which RM2 billion ($500 million) are ESG-related assets.