After nearly 40 years of investing almost entirely into domestic assets, Malaysia’s government-linked investment manager, Permodalan Nasional Berhad, is in a hurry to internationalise – and fund houses are alert to the possibilities.
What's more, PNB has recently further underscored its ambitions and boosted its credentials in respect of overseas investing. It has done so, industry participants say, with the appointment of Jalil Rasheed as its new chief executive and, according to multiple sources, by hiring consultancy Mercer as a portfolio adviser. Mercer declined to comment for this article.
Fund management executives are excited about the potential opportunities to come from the MYR300 billion ($72 billion) institution – which aims to grow its assets to MYR350 billion by 2022.
“Wind back a few years, and PNB was all about supporting the domestic market and very focused on local investment in Malaysia, whether in real assets or listed securities,” one Hong Kong-based senior executive at a US asset manager told AsianInvestor on condition of anonymity. (See also box below.)
“Now they are going for a more enhanced, international allocation,” he added. “They recognise the need to go offshore to help get the returns they need.”
PNB, which declined to comment for this article, saw its returns drop to 6% after a choppy 2018, down from 6.7% the year before. And the environment has been arguably more challenging this year, amid geopolitical tensions such as the US-China trade war.
PNB has nonetheless been handing out and mulling mandates and fund commitments, multiple industry sources confirmed.
PNB'S INTERNATIONAL INVESTMENT STRATEGY
One of the key aims of PNB's Strategic Plan 2017-2022 is to diversify into global assets, and it has moved quickly to do so. The international allocation now stands at 3.3% as of end-2018, up from 2.4% the year before.
In fact, it had planned to deploy capital offshore faster than that, but was constrained by currency fluctuations, acccording to its 2018 annual report, which was published in March this year. The level of overseas exposure remains “below its optimal level”, it added, though it did not indicate what that level might be.
Hence, PNB said, “one of our key priorities will be to accelerate the diversification of our portfolio, whereby we intend to meaningfully increase the percentage of global investments across all asset classes”.
PNB manages MYR245 billion in unit trust funds on behalf of retail buyers, while MYR55 billion of its assets make up a proprietary fund. The latter has overseas public equity holdings, but the unit trust funds have only recently started to invest abroad, group chairman Zeti Aziz said in the annual report.
EXPLORING PRIVATE MARKETS
Indeed, outgoing chief executive Rahman Ahmad had said in the 2018 annual report, published in March this year: “We believe the opportunity in real estate lies globally and in certain segments, such as logistics.”
Moreover, PNB plans to enable its unit trust funds to gain exposure to real estate by investing into global property strategies in 2019.
The firm has also been building its direct offshore property holdings. This year it acquired the commercial assets of London's Battersea Power Station in a joint purchase with Malaysia's Employees Provident Fund.
For private equity, meanwhile, PNB also revealed in the report that it had chosen six global fund managers for the first phase of a “structured outsourcing programme”, and would expand that exposure this year.
All this being said, PNB recognises the challenges of increasing global exposure in today’s turbulent times. That may explain why more than a third (37%) of its international allocation was sitting in cash as of end-2018, with 50% in public equities, 12% in real estate and just 1% in “private investments”.
NEW CHIEF: A "CATALYST"
Still, Rasheed’s arrival as chief executive should help PNB achieve its goals, given his investment and management experience at global fund houses Invesco and Aberdeen, industry executives told AsianInvestor.
“The hiring of Jalil suggests the government is interested in somebody with a commercial and international mindset taking over, meaning a broader investment framework is likely,” noted a fund executive based in Kuala Lumpur.
She added that Ahmad's predecessor had hired consultants to advise on investments in public and private assets, and was seeking to institutionalise PNB’s processes and make them more transparent.
Rasheed will be a “catalyst” to accelerate the process of globalising PNB's portfolio, the unnamed Hong Kong-based executive agreed. “I think [hiring him] is the right move.”
His appointment demonstrates a desire to put the calibre of talent in place that the firm will need, industry observers said. It also reflects the ambition shown in appointing former Bank Negara Malaysia governor Zeti Aziz as chairman in June last year.
Ultimately, PNB plans to benchmark itself against global fund managers and “identify the gaps we need to close” to become a world-class investment house, Aziz said in the report.
Achieving that may be easier said than done, but PNB certainly looks to be on the right path.
Richard Morrow contributed to this article.