According to the Finance Ministry, the investments are to be channelled into high-growth, high-value industries like energy transition and advance manufacturing such as the semiconductor business.
THE pledge by six local government-linked investment companies (GLICs) to invest RM120bil in domestic direct investments over the next five years has attracted both brickbats and praise from seasoned industry and market observers.
While it is crucial that these investments are channelled into industries where the potential for growth is significant, it is also important to have proper monitoring of funds deployed.
“There’s no point putting money into an industry where existing players are already very efficient like commercial banking and where consumers are already getting the cheapest prices in services but whatever it is, the GLICs must know exactly what they are getting themselves into,” says a former bank CEO.
The pledge by the six GLICs last week is part of a government programme aimed at buoying growth in key economic segments.
Detractors say while the strategy seems good in theory, there is a concern that the six GLICs, including Khazanah Nasional, pension funds Employees Provident Fund (EPF) and Kumpulan Wang Persaraan, and asset manager Permodalan Nasional Bhd, may not have enough knowledge of the areas they will invest in.
According to the Finance Ministry, the investments are to be channelled into high-growth, high-value industries like energy transition and advance manufacturing such as the semiconductor business.
Another main concern is that the GLICs such as the EPF have obligations to different parties, including the rakyat, hence investing directly into supposedly high-growth businesses is viewed by some as potentially risky — a gamble more than anything else.
“EPF funds, for instance, belong fully to the people. There should not be too much of a risk when it comes to deploying this money,” says one observer.
Investments need to be carefully vetted. It would be good if an investment committee comprising individuals with experience and expertise, both internally and externally, be established for each deal.
Former investment banker and seasoned investor Ian Yoong feels that the benefits of the government’s directive to GLICs to increase their domestic investments outweigh the potential issues that may arise.
Lower returns
“The shift in focus by the six GLICs to domestic investments will be positive for Malaysian businesses and economy. GLICs have a combined assets under management of RM1.8 trillion — approximately the size of Malaysia’s nominal gross domestic product. This is the best news for Malaysia in a long time.”
Yoong, however, has a word of caution. “There will be lot of money chasing a limited number of domestic deals and this could lead to disaster. We have seen too many projects and businesses that have failed. This has happened all over the world.”
Another point to note is that the local economy will likely have to accept lower returns if GLICs focus on investing domestically, as opposed to betting on global assets. A wider geographical scope tends to give investors a head start towards more returns.
Naturally, the higher the risk, the higher the returns and vice-versa.
One key matter that all parties agree on is making sure only the most capable people are managing funds within these GLICs.
Ensuring that these individuals are there on merit and not by political appointments, improving their remuneration relative only to performance and ensuring that there’s always a check and balance for all investment decisions are some of the crucial steps to make sure that this move achieves its goals.
Individuals with vast experience and knowledge in the areas that GLICs have been told to invest in, must be hired if necessary.
Ultimately, it is hoped that Malaysia will benefit from this move and all the potential pitfalls will not see light.
This article first appeared in Star Biz7 weekly edition.
