Khazanah’s Aziz: Chasing partnerships

The sovereign fund is seeking out partnerships amid ‘too much capital chasing too few deals’.

Earlier in July, Khazanah Nasional Berhad (Khazanah), the sovereign wealth fund of Malaysia, issued a statement confirming that all members of the board of directors, including the managing director, have offered to resign from the board. It added that this change has been done to facilitate a smooth and orderly transition under the new government.

Mahathir bin Mohamad has been serving as Malaysia’s prime minister since May. The prime minister took over the office after a $4.5 billion scandal of 1IMDB, the state investment fund set up by former prime minister Najib Razak. The former minister is in court due to corruption charges as of 20 September.

“I think I have a lot of things to do now. Because the country is in a very bad shape, indebted in trillions of dollars and then the government machinery has been spoilt and we have to rebuild the government,” said the current prime minister Mohamad in a statement released on 15 September.

Amid this negative state of the sovereign wealth fund, Tengku Dato’ Sri Azmil Zahruddin Raja Abdul Aziz, a deputy managing director and head of investments at Khazanah, said that his organisation is looking more partnerships for deal sourcing, adding that, “[it] is an increasingly important investment style for the organisation.”

The sovereign wealth fund invests in alternative assets across country, currency and sector-based allocations, said Abdul Aziz, speaking on a panel at Milken Institute 2018 Asia Summit held in Singapore this month. The fund typically has an eight to 10-year investment horizon.

Khazanah has three sources of income, said the investment head: Reinvestment gains, borrowing or issuing bonds, and divestment.

Additionally, the sovereign wealth fund is expected to deliver an annual dividend to the Malaysian government, although the government does not provide a cash injection to the fund.

He sees larger private deals across Asia, the region where Khazanah is mainly focused for alternative asset allocation. “There are more exits from private equity [firms] to other PEs,” Abdul Aziz said.

Other Asian sovereign wealth funds also seek partnerships for deal sourcing and better exits. For instance, Korea Investment Corporation, a Korean sovereign wealth fund, established the Co-investment Roundtable of Sovereign and Pension Funds (CROSAPF) in 2014 to identify, collaborate and co-invest with limited partners, general partners, investment banks and corporations.

Among others, CDC international capital, a direct investment arm of France’s Caisse des Dépôts Group, was at CROSAPF’s latest working committee meeting that took place in Morocco, according to a public disclosure.

In the case of Khazanah, it has an existing partnership with Temasek Holdings, one of the two Singaporean sovereign wealth funds.

Khazanah has a 60 percent stake in M+S Pte, a Singapore-headquartered real estate development firm, which is a joint venture with Temasek, according to Khazanah’s latest annual report published on 1 May.

The property joint venture was launched in June 2011 to develop four land parcels in Singapore as part of Marina One and Duo integrated developments. These mixed-use projects have a combined gross development valued at $11 billion, the report shows.

Khazanah also holds 50 percent stakes in Pulau Indah Ventures, a joint venture between the Malaysian sovereign wealth fund and Temasek. The partnership aims to develop long-term development projects in Iskandar Malaysia in Johor, another statement shows.

PDI’s request for comment on investment exit strategies for alternative assets to Khazanah could not be returned by publication time.

A Singapore-based spokesperson of Temasek told PDI that the sovereign wealth fund “has full flexibility to increase, decrease or hold our investments based on their respective intrinsic values, or whenever opportunities or challenges arise.”

As Dechert and MergerMarket survey found it is increasingly common to see private investors collaborating with investment partners such as private equity firms, strategic buyers and limited partners.

Industry practitioners have stated the private capital markets are currently suffering from ‘too much capital chasing too few deals’, and more asset allocators are seeking direct investments and partnership with other asset buyers.

Chris Lerner, a Shanghai-based managing director at Eaton Partners, a Connecticut-headquartered private investment advisory firm, also noted that large-cap asset allocators in Asia are in a situation where asset valuations are high and not many assets are available at a discount.

“It is about where and how you hunt,” Lerner told PDI.