SOVEREIGN wealth fund Khazanah Nasional Bhd today reported losses of RM6.27 billion last year from a profit of RM2.896 billion the year before.

Khazanah said its portfolio value, as measured by its net worth, also declined RM25 billion (21.6%) to RM91 billion at end 2018 from RM116 billion the year before.

At Khazanah’s annual performance review in Kuala Lumpur today, the company said that the poor performance last year was due to global and domestic developments.

“Profitability was affected due to fewer divestments, reduced dividend income and higher impairments during a period of transition for Khazanah in an unfavourable market,” it said in a statement.

Khazanah said the realisable asset value of its portfolio value fell to RM136 billion in 2018 from RM157 billion  in the previous year.

The wealth fund also announced a new investment strategy that classifies its portfolio into a commercial and strategic fund.

The rejig comes as Putrajaya seeks to raise money for government coffers, depleted by a fiscal deficit and massive debt from a multi-billion-dollar scandal at state investment fund 1Malaysia Development Bhd (1MDB). 

Impairments stood at RM7.3 billion in 2018, RM5 billion higher than 2017’s RM2.13 billion. It is the government’s investment arm’s first loss since 2005.

“Khazanah’s portfolio was affected by global economic uncertainty in 2018, which saw markets underperform due to geopolitical tensions on top of pessimistic growth outlook for emerging markets,” managing director Shahril Ridza Ridzuan told the media briefing today.

Khazanah’s portfolio value declined to RM91 billion on December 31, 2018, a 21.6% drop from RM116 billion the previous year.

Its domestic portfolio was impacted by share price losses by Telekom Malaysia Bhd (-56.9%), Axiata Group Bhd (-26.9%), CIMB (-9.3%), Tenaga Nasional Bhd (-7.9%), IHH Healthcare Bhd (-7.6%) and Malaysia Airports Holdings Bhd (-3.3%). Khazanah, however, declared a dividend of RM1.5 billion for 2018.

Last year, Khazanah acquired Prince Court Medical Centre and invested in Ping An Good Doctor and Ant Financial in China. In addition, the Marina One and DUO Developments in Singapore were completed and launched while Phunware and Farfetch saw successful IPOs in the US.

Shahril said that Khazanah’s long-term portfolio performance remained on an upward trajectory, with its net worth adjusted (NWA) achieving an 11% return per annum over the last 10 years.

“Looking at 2019, we’re comfortable with the fact that we should be able to see profitability, given that a lot of picking up done for 2018 has gone through the books,” Shahril said.

He said the new government had initiated a “reset of Khazanah, which involved significant changes, including a refreshed mandate”. 

“Last year, the Malaysian government initiated a restructuring and reorganisation of Khazanah involving leadership changes in the board of directors and management as well as a refreshed mandate and objectives.

“The current organisational restructuring we are currently undertaking will enable us to execute and deliver on our role of growing Malaysia’s long-term wealth beginning this year.”
 
Shahril said Khazanah will split its investment structure into commercial and strategic funds. 

The commercial fund will have a targeted return equivalent to the Malaysian Consumer Price Index (CPI) plus 3% on a five-year rolling basis. This fund includes public assets such as CIMB Group, Axiata Group, IHH Healthcare and Alibaba.com and private assets such as The Holstein Milk Company, Sun Life Malaysia, WeLab and Palantir. 

The strategic fund will have a targeted return equivalent to the 10-year Malaysian Government Securities (MGS) yield on a five-year rolling basis. This fund includes strategic assets such as Telekom Malaysia, Tenaga National, Malaysia Airlines, Malaysia Airports and PLUS Malaysia and developmental assets such as Silterra, Iskandar Investment Bhd, Themed Attractions Resort and Hotels, Pinewood Iskandar Malaysia Studios and Medini Iskandar Malaysia. – March 5, 2019.