Written by: Breakfast Grille
Datuk Shahril Ridza Ridzuan, Managing Director of Khazanah Nasional, is from that rare breed of leaders who lead important public institutions like Khazanah, EPF and Danaharta but who also know how to protect public assets from abuse by politicians. Here are 10 things that we learnt from his Breakfast Grille session today with BFM’s Wong Shou Ning:
1. The government is entitled to ask any amount of dividend from Khazanah
Khazanah recently announced a RM2 billion dividend payout to the government, despite only making RM2.9 billion in profit for 2020.
This will have some impact on Khazanah’s long term requirement to reinvest. But given the pressure the government is experiencing to support the economy during the Covid pandemic, Shahril sees no problem in paying this higher dividend to support the government.
After all, Khazanah is 100% owned by the government.
2. Khazanah is open to its MAS stake being divested, but don’t hold your breath
Khazanah was already looking for a strategic investor to come in and take a stake in Malaysia Airlines since 2018. But now, realistically, it won’t happen until Covid is over. Airlines all around the world are too focused on surviving themselves at the moment, and most would go bankrupt without government support.
3. Do not expect Khazanah’s latest RM3.6 billion injection in MAS to be the last bailout.
Khazanah did a deal with Malaysia Airlines’s creditors very quickly and removed RM10 billion of liabilities off its balance sheet. But when pressed whether the RM3.6 billion is the final bailout, Shahril replied, “There are no guarantees in life”. Malaysia Airlines should have, however, enough to last for five years.
4. Governments are bad at building businesses
Governments around the world tend to be poor at being business builders.The entrepreneurial streak that’s required to make it a success doesn’t exist.
Partnerships with the private sector may be the better way forward for Khazanah’s strategic investments. Shahril pointed to Holstein Milk as a good example of public-private partnerships done right, where it has emerged to become the largest producer of milk in Malaysia.
5. Khazanah is over exposed to the Malaysian market for the commercial fund
Although Khazanah’s returns for its international portion of its commercial fund was 26% in 2020, the underperforming Malaysian market dragged Khazanah’s overall two year rolling time weighted rate of return to only 1.5% in 2020.
The goal for the future is to get more exposure to companies and assets in developed economies as well as emerging markets in North Asia and India for diversification. This ensures a more consistent risk adjusted return towards Khazanah’s long-term return benchmark of consumer price index plus 3%.
6. Khazanah practices market timing
There’s a lot of liquidity in global markets resulting in euphoria around asset prices. Retail money is driving valuations to peaks. But markets are never a straight line and Khazanah will have to try and enter the markets when there are dips with a view towards building a long term portfolio. Shahril says that If you are a disciplined long term investor, over the long term, you will generate better returns than people who just trade on momentum.
7. Political appointments are here to stay
Shahril says Khazanah is not fond of political appointments. But in companies where Malayisan government owns a golden share, Khazanah accepts that the Malaysian government has the right to make appointments.
8. Best defence against political interference are institutions with good governance
Individuals can be appointed and removed, but Shahril says if you create institutions with the right governance, the right processes, and the right strategies, the institution will outlast any government or individuals who run them. That was Shahril’s focus at EPF.
9. Shahril does not accept Khazanah is less transparent then Temasek
Whilst Khazanah’s transparency is not to the level of Norway’s Norges, the world’s largest sovereign fund, Shahril does not accept that Khazanah’s transparency is lesser than Singapore’s Temasek. Shahril is happy to strive for more transparency but also poses the question of whether Malaysia has a mature enough society to handle that kind of transparency.
10. Will Shahril still helm Khzanah when his contract ends in August?
Shahril said it’s too premature to discuss this, it’s still a few months away. But he feels he is blessed to have had the opportunity, especially at EPF and Khazanah, to do work that has a direct bearing on the people and financial future of Malaysia.