KWAP to invest $9bn in local private markets in next five years
Malaysia’s public pension fund will alter its 2025 strategic asset allocation, allowing it to "better execute" a commitment to investing RM40 billion ($9.3 billion) in the domestic private market, according to Hazman Hilmi Sallahuddin, CIO of Kumpulan Wang Persaraan (Diperbadankan), or KWAP.
KWAP manages about $40 billion in assets, according to the CIO.
In 2022, it made the decision to double its allocation to alternative assets from 10% to 20% by 2025 across private equity, venture capital, infrastructure, and real estate.
Because of the new commitment to increase local alternative investments, KWAP is currently figuring out how much more alternative allocations need to increase, Sallahuddin shared at a panel during AsianInvestor’s 3rd Malaysia Global Investment Forum in Kuala Lumpur on October 8.
Six Malaysia’s government-linked investment institutions, including KWAP, Employees Provident Fund (EPF), Khazanah, and military pension fund LTAT, have a joint commitment to support the government’s GEAR-uP initiative, which aims to deploy a total of RM120 billion over the next five years to support local high-growth industries.
Targeted sectors include agriculture, semiconductors, the venture capital ecosystem, infrastructure and transport, renewable energy, data centres, healthcare and biopharmaceutical.
From among these, KWAP identified three strategic focus areas: agriculture and food security, the semiconductor industry, and the venture capital ecosystem.
LOCAL PUSH
In 2023, KWAP ramped up its private market activities and did over 30 transactions, mainly in funds outside Malaysia.
Starting in 2024, as the US dollar strengthened under high interest rates, KWAP changed its focus to domestic markets on both public and private fronts.
“We are quite lucky. Because [in] 2024, we saw the Malaysian market has a big upside,” said Sallahuddin.
“Given that we are 76% exposed in Malaysia, we hope that 2024 will be the best year for KWAP since its inception,” he said. The pension fund was established in 2007.
In 2023, KWAP recorded an 8.2% investment return, driven by a rally in global equities.
As part of efforts to boost its alternative investment in Malaysia, KWAP launched a programme to invest RM500 million in local venture capital last year, whereby half would be invested into Malaysia-focused or based venture capital funds. The other half would be invested in Malaysian startups from Series B funding rounds onwards.
To further support the local private equity ecosystem, KWAP in May launched another RM6 billion private equity fund with a co-general partner (GP) model under separately managed accounts, where KWAP would invest RM500 million in 12 funds, bringing in 12 global GPs to partner with 12 new, not existing, local GPs.
Meanwhile, the pension fund continued its deployments outside Malaysia. This year so far, it has invested in six global venture capital funds, including three in the US, two in Europe, and one in Singapore.
All six funds have agreed to set up a representative office in Malaysia, Sallahuddin noted.
“Given this geopolitical tension, there is a trend that they want to expand in Southeast Asia, and also to derisk from certain geographies,” he said. Sallahuddin observed that it has been relatively easy to get funds agreed to open offices in Malaysia amid the geopolitical and market developments.
“The test is whether you can deploy and whether you can get the returns. So that will be our focus for the next few years,” he added.
NEW ASSET CLASS
With interest rates staying elevated, the investment chief concurred with several asset owners who spoke to AsianInvestor this year that private credit has become more attractive.
KWAP plans to make its first global private credit investment early next year, with a focus on senior-secured direct lending that covers both real estate and infrastructure, according to Sallahuddin.
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The pension fund is not ready to invest in local or Asian private credit as yet as the market is still nascent, he said.
“Most likely what we're going to do is we're going to invest in private credit funds in the developed market first, before we come and expand into this region,” he said.
"Having said that, [my] observation is that most mid-market companies in Malaysia prefer to go to the banks for loans rather than go for equity or private credit. I think that may change,” he added, noting similarities to the local private equity market.