PNB starts factor investing and eyes private credit

The Malaysian state-linked unit trust manager has given factor-based global equity mandates to three fund houses and is mulling investing into new types of illiquid assets, say sources.
PNB starts factor investing and eyes private credit

Malaysia's Permodalan Nasional Berhad (PNB) awarded its first factor-based investment mandate in the second quarter of this year, and it may start out as large as $240 million once it has been funded. The state-linked fund manager is also mulling moves into private credit and foreign infrastructure as it strives to build a more diverse and international asset portfolio, well-placed sources have told AsianInvestor.

PNB, which has RM312 billion ($75 billion) under management, picked three fund houses in the second quarter to run low-volatility global equity mandates, said an industry executive familiar with the matter. The plan is for each firm to manage a portfolio of between $50 million and $80 million, with a view potentially to expanding them over time, he added.

Zulqarnain Onn,
PNB's new CEO

US stocks form the bulk of the underlying portfolio, the executive noted, as the S&P 500 is the largest, most liquid and most efficient equity market. He said that he did not know which managers had won the mandates.

Europe might be a focus for the firm's factor investment in the future. “They would like to see the success of the mandates first," the executive noted, "but the natural evolution would then be to use factor strategies in European markets."

The investment strategy may undergo tweaks, though, as PNB appointed a new chief executive in July: Zulqarnain Onn, formerly of sovereign wealth fund Khazanah Nasional. It's natural for new heads to make changes, as former chief Jalil Rasheed did when he started last year.

PNB declined to comment for this article, apart from to provide the folllowing statement: "We have begun to award external mandates that complement our in-house managers and strategies in line with our stated strategy of diversifying and internationalising the portfolio. These mandates are across various asset classes including public equity, private equity and real estate.

"We look forward to working with existing and future managers that add real and sustainable alpha to our funds."


Factor-based strategies apply measures other than standard market capitalisation weighting, such as value, momentum or low volatility, to calculate how much to allocate to a chosen asset class (typically equities), with a view to beating the market. Often also called alternative risk premia or smart beta, these investments typically employ a single factor, but multi-factor models are gaining growing traction.

PNB's headquarters in
Kuala Lumpur

However, factor strategies – particularly single-factor ones, and most notably value – are facing headwinds, and a growing number of investors have ditched this approach this year on the back of disappointing performance. Not all investors are headed for the exits, though, as they feel that these types of investments still have a role to play in portfolios, depending on the factors they incorporate and how they are combined.

Indeed, when PNB was assessing managers of factor strategies, it looked at numerous different styles for different scenarios, the executive said. It took the view that their returns would balance out depending on how the market behaves.

Hence PNB took a “customised factor approach” rather than a purely passive one, whereby it incorporates factors like value, growth and momentum, he added. The institution also feels it is a sensible move to have a factor-based portfolio sitting alongside an actively managed portfolio because returns would vary depending on the market environment, he said.


This comes as PNB works to implement a new, more global investment strategy, whereby it aims to raise its overseas allocation to 30% by 2022 from around 10% today.

And, as with listed equities, PNB is expanding its horizons when it comes to private market assets. It started out with a focus on private equity and is now also moving to diversify its overseas real estate portfolio, including by selling some of its UK office assets and turning to areas such as logistics and residential.

“The natural evolution of that will be to look at things like private credit and infrastructure-related investments which PNB is considering as it develops its private markets strategy,” said another industry executive familiar with the firm.

“Infrastructure is not new to them,” he added. “In Malaysia, PNB owns the second-largest expressway operator. Infrastructure investments provide a nice recurring income for the portfolio.”

The next step, though, may be to look at infrastructure assets outside Malaysia, to which it would allocate through funds rather than directly, the executive said. 

Certainly, this is an asset class that offers interesting opportunities and is gaining growing traction among institutional investors seeking stable, recurring income – something that is harder to come by these days than in the past.

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