By Khairul Khalid
The controversial amendments to the Retirement Fund Act, apart from removing Bank Negara from KWAP’s investment panel, also contains a clause of secrecy. Will these changes compromise transparency in the RM112 billion pension fund?
________________________________________________________________________
Will Kumpulan Wang Persaraan Diperbadankan (KWAP) or Retirement Fund Inc – a pension fund of approximately RM112 billion – be less transparent if the bill to remove Bank Negara from its investment panel is passed in Parliament? That depends on who you ask.
KWAP chief executive officer (CEO) Wan Kamaruzaman Wan Ahmad has defended the move, saying that it was Bank Negara who requested its own removal from KWAP on the basis of conflict of interest with the central bank’s role as a regulator.
Bank Negara has been on KWAP’s investment panel since the pension fund was formed in 2007. It has not issued any official statements on the matter. Wan Kamaruzaman also insists that despite Bank Negara’s absence, KWAP corporate governance will not be compromised.
“There are checks and balances. Each level of management has its limit and authority. There is a lot of governance involved. I just want to be transparent,” the CEO said in a recent interview with StarBiz.
However, apart from Bank Negara’s removal from the investment panel, another clause in the proposed amendments to the Retirement Fund Act 2007 that has not been as prominently highlighted is one on secrecy of information.
Obligation of secrecy
Under this proposed amendment for the “obligation of secrecy”, any KWAP board member or investment panel caught disclosing information or documents related to KWAP may face hefty fines and even imprisonment.
The related clause in question is as follows, as per the amendment bill:
Obligation of secrecy 21a. (1) Except for any of the purposes of this Act or for the purposes of any civil or criminal proceedings under any written law or where otherwise authorized by the Board— (a) no member of the Board, Investment Panel, committee, officers and servants of the Retirement Fund (Incorporated) or any person attending any meeting of the Board, Investment Panel or any of its committees, whether during or after his tenure of office or employment, shall disclose any information which has been obtained by him in the course of his duties and which is not published in pursuance of this Act; and (b) no other person who has by any means access to any information or documents relating to the affairs of the Retirement Fund (Incorporated) shall disclose such information or document.
(2) Any person who contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding one hundred thousand ringgit or to imprisonment for a term not exceeding three years or to both.
The bill further adds that “Clause 8 seeks to introduce a new section 21a into Act 662 to impose duty to maintain secrecy”.
Are these amendments to protect secrecy necessary to protect KWAP’s investments?
“They don’t really jive with KWAP’s claims of transparency. Surely any indiscretions such as leaks of information can be dealt with internally, without the need for RM100,000 fines or jail time. Anyway, what can be so secretive or sensitive about KWAP’s investments of pensioners’ savings to justify such harsh measures?” said an analyst.
KWAP’s RM4 bil loan to SRC/1MDB
Many are already divided over the move to replace Bank Negara from KWAP’s investment panel. Some say it makes sense given Bank Negara’s role as a regulator. Others are more circumspect.
“The bill should not be tabled. It will remove the scrutiny of Bank Negara (over KWAP). There will be no check and balances. This would allow KWAP to make more risky and questionable investments,” said Rafizi Ramli, Pandan member of parliament (MP) at a press conference.
KWAP is already indirectly embroiled in the ongoing saga surrounding sovereign fund 1Malaysia Development Bhd (1MDB). In 2011, the pension fund provided a RM4 billion loan to SRC International Sdn Bhd, which was then a subsidiary of 1MDB.
Rafizi Ramli
The loan was purportedly to purchase Gobi Coal & Energy, a mining company in Mongolia. Rafizi reveals that Putrajaya was a guarantor for the RM4 billion loan by KWAP to SRC.
“The purchase has not materialised until now. It isn’t known how the RM4 billion was spent,” said Rafizi.
SRC has since been absorbed as a fully-owned entity of the Finance Ministry, with the RM4 billion liability removed from 1MDB’s accounts.
Earlier this month, Rafizi also questioned whether the over RM1 billion to be injected into KWAP following a passage of the supplementary budget is to counter the possibility that the fund would not be able to pay its pensions partly due to the RM4 billion loan.
KWAP has not responded to requests for an interview.
SRC’s RM204 mil impairments
In a press conference yesterday, Rafizi revealed that SRC has registered a RM204 million impairment for its latest audited accounts for the financial year ended March 31, 2014. An impairment is a reduction on a company’s stated investment due to estimated losses.
“In the financial year 2014 alone, losses through impairments posted by SRC from its investments in coal in Mongolia was approximately RM204 million (RM115 million through its own investments and RM89 million through a joint venture).
“The RM204 million losses is a substantial amount. The funds used by SRC is the RM4 billion loan by KWAP,” said Rafizi.
Furthermore, Rafizi said that RM3.1 billion of SRC’s investments are “categorised as unknown investments without proper information and therefore unauditable”.
The MP said that many pensioners are upset over KWAP’s loans to 1MDB and are considering legal action to demand compensation.
Mega property deals
Other than 1MDB, KWAP is targeting to expand its investments in the domestic equity, property and fixed income markets. It is also looking at venturing into the construction sector.
This month, KWAP purchased Integra Tower in Kuala Lumpur for RM1.06 billion, its first property investment in the domestic market. The pension fund also owns six commercial properties in Australia and three in London.
Last year KWAP purchased an 80% stake in Intu Uxbridge, a shopping mall in the United Kingdom, for approximately RM961.4 million.
If the bill to remove Bank Negara from KWAP is passed, what could be the implications on KWAP’s mega deals?
Are safeguards in place?
According to Yeah Kim Leng, dean at the School of Business at Malaysia University of Science (Must), the implications of potential changes at KWAP’s investment panel could be major or minor, depending on a few important factors.
“The influence of the investment panel could be either positive or negative. It depends on the corporate governance practices in place, the independence, objectivity and professionalism of the investment panel members and finally the nature of external interference in the management and investment decisions,” said Yeah to KINIBIZ.
Yeah says that that for state-owned enterprises (such as KWAP), “if the first two safeguards (ie corporate governance and independence of investment panel) are in place, then it is generally accepted that regulators should not be involved in making commercial decisions”.
With more risky ventures overseas and a fund expected to expand to RM120 billion this year, transparency and regulatory oversight is going to be a critical issue for KWAP. It remains to be seen whether the removal of Bank Negara from KWAP’s investment panel will jeopardise or strengthen its corporate governance.
Yesterday: Should Bank Negara remove itself from KWAP?
Tomorrow: Should EPF take over KWAP?
You must be logged in to post a comment.