By Khairul Khalid
Some curious changes are afoot at pensioners’ fund KWAP, especially with the proposed bill to remove Bank Negara from its investment panel and secrecy clauses. The question is, why now? And is there not a better solution?
Kumpulan Wang Persaraan Diperbadankan (KWAP), a RM112 billion pension fund, is in the process of removing Bank Negara Malaysia from its investment panel. These changes are part of proposed amendments in the Retirement Fund Act 2007 that are being discussed in Parliament.
KWAP’s rationale for this major change is conflict of interest. CEO Wan Kamaruzaman Wan Ahmad says that it is not an unusual move, explaining that Bank Negara has previously stepped down from similar positions in state investment fund Khazanah Nasional Bhd.
Wan Kamaruzaman Wan Ahmad
This was “to avoid conflicts of interests as the central bank was a regulator and should not get involved in funds that invest in and outside Malaysia,” Wan Kamaruzaman said in a recent interview with Starbiz.
The CEO also claims that it was Bank Negara themselves who had written to KWAP requesting its withdrawal from KWAP’s investment panel.
Why, then, is this legislation making a lot of people nervous?
In principle, the move makes sense.
Bank Negara, as the ultimate regulator of the Malaysia’s financial sector, should be overseeing – not advising – KWAP’s multibillion-dollar investments. If a KWAP investment or deal goes sour, it might seriously compromise Bank Negara’s credibility and integrity as well.
But why is Bank Negara leaving now?
KWAP was formed in 2007 and Bank Negara has had a representative in the investment panel of the pension fund since its inception. Did Bank Negara suddenly have a pang of guilty conscience after eight years in KWAP’s investment panel and decide that it was time to leave?
KWAP, which has similar functions to the Employees Provident Fund (EPF) that provides retirement savings to the private sector, has been making massive deals in recent years. Any alarm bells about Bank Negara’s possible conflict of interest should have rung a long time ago.
For example, KWAP 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 million.
This month, KWAP purchased Integra Tower in Kuala Lumpur for RM1.06 billion, its first property investment in the domestic market. It is also considering venturing into the construction sector.
KWAP is targeting to expand its fund size to RM120 billion this year and its investment income grew at an average 13.96% between 2009 and 2013.
Critics are suggesting that Bank Negara’s potential removal from KWAP’s investment panel would remove an important check and balance, allowing KWAP to make more risky and questionable investments with pensioners’ funds.
Worries of corporate governance and scrutiny of KWAP’s deals is also compounded by its association with the four letter word that is all the rage right now – 1MDB (1Malaysia Development Bhd).
In 2011, KWAP provided a RM4 billion loan to SRC International, which was then a subsidiary company of 1MDB. The loan was purportedly to purchase Gobi Coal & Energy, a mining company in Mongolia. Putrajaya was a guarantor for the RM4 billion loan by KWAP to SRC.
The purchase hasn’t materialised until now and it isn’t quite clear how the RM4 billion was spent.
SRC has since been absorbed as a fully-owned entity of the Finance Ministry, with the RM4 billion liability removed from 1MDB’s accounts.
With the controversy of 1MDB’s RM42 billion debts still raging, the proposal to remove Bank Negara from KWAP’s investment panel has caused major concerns over issues of corporate governance and regulatory oversight.
Intriguingly, the new amendments in the bill also include a clause for “obligation of secrecy”. Essentially, any KWAP investment panel representative caught leaking information or documents may face a RM100,000 fine or even jail time. What next, sealing KWAP’s deals under the Official Secrets Act (OSA)?
This will hardly appease the concerns about transparency, if Bank Negara’s withdrawal from KWAP is approved.
Perhaps there is also a case to be made that KWAP’s role could be easily subsumed under EPF.
KWAP manages contributions from the federal government, statutory bodies, local authorities and other agencies. It also administers, manages and invests the fund in equity, fixed-income securities, money market instruments and other forms of approved investments.
Nevertheless, KWAP is still not a full-fledged pension fund just yet. Currently, it is more of an investment arm for pension funds of civil servants.
EPF also handles collection, withdrawal of retirement benefits as well as other value-added services for its members.
Would it not be more efficient and sensible to let EPF handle KWAP’s functions too?
With all its expertise, experience, financial muscle and resources (fund size approximately RM600 billion) it should be more than capable of managing the pensions of about 600,000 civil servants.
This, however, looks highly unlikely with the latest KWAP bill. It is uncertain if Bank Negara’s removal from KWAP, if approved, will be a step in the right direction. Pensioners face a nervous wait until the bill’s second reading next month in Parliament.
GRRRRR!!!
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