How KWAP is teaming up with foreign players to drive Malaysian PE
Malaysia’s public pension fund is advancing the government's goal to expand the local private equity ecosystem by partnering with global asset managers and Asian asset owners.
Kumpulan Wang Persaraan (Diperbadankan), or KWAP, has received over 40 proposals from global general partners (GPs) for a RM6 billion ($1.4 billion) domestic private equity programme, launched in May. About 20% of the GPs are large players in the private equity universe, according to Hazman Hilmi Sallahuddin, KWAP’s chief investment officer.
The fund plans to announce a finalised list of 12 GPs in December. The GPs will, in turn, partner with 12 new local GPs for co-investment in Malaysia’s private equity market in the form of separately managed account (SMA) funds.
Meanwhile, KWAP is also developing several semiconductor funds, including a recently closed fund in collaboration with a Korean limited partner (LP), and another Malaysian LP to invest in both countries.
KWAP is also working with some of Malaysia’s government-linked investment companies (GLICs) to bring Chinese semiconductor companies to Malaysia, while it is also developing a semiconductor fund with a Taiwanese chip company that intends to set up in the Southeast Asian country, capitalising on a wave of investors seeking geographic diversification amid geopolitical tensions.
“We want to create more players in the Malaysian ecosystem,” Sallahuddin remarked at AsianInvestor’s 3rd Malaysia Global Investment Forum in Kuala Lumpur on October 8.
LOCAL PE FUND
KWAP manages about $40 billion in assets, according to the CIO. In 2022, it made the decision to double its allocation to alternative assets – including private equity, venture capital, infrastructure, and real estate – from 10% to 20% by 2025. As a result, the pension fund struck more than 30 private market deals in 2023, mainly in funds outside Malaysia.
Starting in 2024, as the US dollar strengthened under high interest rates, KWAP shifted its focus to domestic markets on both the public and private market fronts.
KWAP launched a programme to invest RM500 million in local venture capital last year as part of efforts to boost its alternative investments in Malaysia.
A RM6 billion private equity programme was launched in May to support the local private equity ecosystem. KWAP would utilise a co-GP model via SMA funds, pledging to bring in 12 global GPs to partner with 12 new, not existing, local GPs. The pension would invest RM500 million each into the 12 funds.
KWAP’s focus in Malaysia is on its key economic sectors including food security, education, silver economy and healthcare, energy transition, digital economy, financial inclusion, and other impact-related themes.
Under the private equity programme, half of Its capital commitment would be invested in Shariah-compliant SMAs that comply with Islamic law, while the rest would go toward conventional vehicles and could be invested overseas.
GOOD DEALS
Sallahuddin believes the co-GP model can effectively broker KWAP’s collaboration with new local GPs. The pension is restricted from investing in first-time funds.
“It's a chicken and egg [situation]. If you can’t invest in first-time fund, how do you create new funds in Malaysia? So, we create this shortcut by bringing the 12 global GPs. We invest in these big names, and then we get them to train and develop our local talent,” he said.
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“Our hypothesis is that there are good deals in Malaysia. There may not be big deals, but there are good mid-market size deals in Malaysia, which may not be visible to us as a pension fund, because we are too big. That's why we outsource this to managers who can then go down and create and curate such mid-market deals,” he said.
To maximise visibility, KWAP sent requests for proposal (RFPs) to 100 global GPs, receiving over 40 responses. It has curated 70 names of local GPs for assessment by global players and awaits approval from its investment panel before presenting the list to its board and Malaysia's Ministry of Finance.
The CIO noted increasing interest from foreign investors in Malaysia’s green infrastructure and digital infrastructure, such as renewable energy, data centres, and semiconductors.
Semiconductors will also be a focus for KWAP’s alternative investments later this year and next.
As both venture capital and private equity programmes have been going well, KWAP plans to launch a second venture capital fund by the end of next year, and another private equity programme in two or three years, Sallahuddin said.
“What’s important is that [they are] a series of programmes. It’s not just one-off,” Sallahuddin said.
As private credit is still a nascent market in Malaysia, KWAP would explore it as another asset class under the second private equity programme, the investment chief said.