Malaysia’s government-linked investment manager, Permodalan Nasional Berhad (PNB), is aiming to accelerate plans to increase its overseas allocation over the next three years to 30% from 8.5% in 2019.

In the firm’s first-ever live streaming on Facebook on Monday (May 4), PNB outlined its strategy to diversify its RM 312 billion ($72.3 billion) portfolio. 

“The goal is to optimise overall risk-adjusted returns in a persistently low-yielding environment that we are in. Not only will we be diversifying asset classes, but also sub-classes underneath to capture specific sectors and geographies,” said chief executive Jalil Rasheed, an investment veteran who was appointed last year.

Jalil Rasheed

The move will see the firm engage more external managers to invest on its behalf, as well as adding strategies in the portfolio mix.

One of the new strategies under considerations is a quantitatively based investing method, through which the firm hopes to reduce the volatility of its equity funds. The fund is also seeking opportunities in Asia, particularly logistics and warehouse assets, as it shifts its focus away from developed markets’ real estate and private equity. 

The gloomy market outlook has not deterred PNB from deploying its capital, group chairman Zeti Aziz said. The institution is well placed to do so given its cash position, which makes up 13.4% of its AUM.

“The market weakness is in fact an opportunity for us to accumulate good quality stocks at lower valuations, and our current cash pile of about 13.4% puts us in a good position to take advantage of this prevailing market mispricing,” Aziz said.

Source: PNB

The new initiatives will form part of a new three-year plan called ‘Focus 4’, which is set to replace ‘Strive-15’. The latter was devised in 2017 and was designed to guide the firm for six years until 2022. The previous target laid out in Strive-15 to grow its assets to RM350 billion by 2022, however, still stands, Rasheed said.

PNB’s ambitious offshore allocation and diversification plan makes sense as global equities were the biggest contributor to its portfolio performance last year, when its AUM grew by 4.5%. Aziz said global equities, which make up a 5.9% allocation of its international assets, generated RM1.7 billion worth of returns. PNB’s offshore allocation more than doubled to 8.5% last year from 3.3% in 2018.

RINGGIT WEAKNESS

However, any plans will still depend on the strength of the Malaysian ringgit, which has dropped close to 5% to stand at 0.23 against the dollar so far this year. 

“The risk that could delay our deployment is the currency; our receipts are in Malaysian ringgit, hence any deployment will be made carefully taking into account the strength or weakness of the ringgit,” Rasheed said.

With the world still grappling with the impact of coronavirus and the consequence of lockdowns and broken supply chains, lower returns seem inevitable.

“What we do know for certain is that it's going to be weaker numbers ahead in the next few quarters as the results of the shutdown and the subsequent impact start showing,” said Rasheed. He added that the level of returns would depend on the rate of recovery as the firm is not immune to such challenges

OPITIMISING EFFICIENCY

While Rasheed admitted that outward challenges are not within his control, he said PNB’s investing and governance process will remain robust.

It has launched a stewardship framework that will help guide investee companies in streamlining their businesses, organisational health, and improving accountability.

PNB will also look to promote a “robust risk culture and infrastructure”, according to the firm’s statement. Rasheed said risk management monitoring and reporting is automated, and employees’ performance is also based on how they manage risks.

These protocols underline Rasheed’s focus to quicken the process of internationalising PNB’s investment mandates and operations.

“From what I can see, since joining PNB, Jalil’s focus has been more on streamlining PNB’s organisational structure and internal processes as well as creating an open culture within the organisation,” said a Hong Kong-based senior investment executive at a US asset manager.

Joe Marsh contributed to this aritcle.