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Malaysia's Armed Forces fund eyes overseas, ESG investments

By Goh Thean Eu  
Oct 2, 2019

Malaysia’s Armed Forces Fund Board is looking at growing its foreign investments, and also environmental, social and governance (ESG) investments, as part of a five-year programme to transform itself into a world class pension providing sustainable returns to members, according to its top executive.

Nik Amlizan Mohamed, chief executive of the fund, which is known locally by its Malay language acronym LTAT, also says a strategic asset allocation (SAA) plan will be developed under the programme and is expected to be ready in 2020.

“ESG is something that I feel really strongly about. In terms of increasing overseas investment exposure, it is also an area we are looking at. However, our main focus now is to get our house in order first,” she told reporters at a press conference on September 30, held to announce the fund’s 2018 financial results.

All of the fund’s investments are currently domestic, including a 59.45% stake in Kuala Lumpur-based conglomerate Boustead Holdings.

The LTAT has never had a strategic asset allocation since it was set up 47 years ago, and Ms. Nik Amlizan suggested that it may not be easily achieved.

“We expect to have our SAA ready next year. However, it is one thing to have SAA in place, achieving it is another thing,” she says.

The LTAT reported a net profit of 221 million ringgit (US$52.74 million) for 2018, sharply down from a restated 459.5 million ringgit in 2017.

Ms. Nik Amlizan says the 51.9% decline was due to the overstating of the prior year’s figure, and also overpayment of dividends in 2016 and 2017.

She says profits in 2016 and 2017 were overstated by 238.8 million ringgit and 202.7 million ringgit, respectively, because of “premature income recognition” from several uncompleted land sales. As a result, dividends for the two years were overpaid by more than 556.6 million ringgit.

“These are clearly not the best practices that we want to have [moving forward],” Ms. Nik Amlizan says.

The overpayment of dividends caused an accumulated loss of 170.8 million ringgit to the fund’s retained earnings in 2017.

The LTAT’s total assets were down to 9.4 billion ringgit as of end-2018 from 10.1 billion ringgit a year earlier, which Ms. Nik Amlizan says was mainly due to withdrawals by retired members.

She says the LTAT has made significant changes since she joined a year ago, such as forming its first investment committee at the management level, and hiring its first chief investment officer.

The fund’s investment decisions were previously largely made by former chief executive, Lodin Wok Kamaruddin.

Ms. Nik Amlizan, who was formerly chief investment officer of Kumpulan Wang Persaraan, Malaysia’s second largest pension fund, replaced Mr. Lodin last October after he resigned.

Despite the changes put in place since, she says there is still plenty of room for improvement at the fund.

She says it may consider selling stakes in investee companies, and invest overseas or in other asset classes if the opportunities arose.

“We are patient investors. We have no intention of selling our assets at firesale prices. We will not rush into making [any] irresponsible decision when it doesn’t benefit our soldiers,” she says.

The LTAT, which was set up in August 1972, provides retirement and other benefits to officers and rank and file members of the Malaysian armed forces.

Serving rank and file members are required to contribute 10% of their monthly salaries to the fund with the government contributing 15%. Contributions by officers is voluntary, ranging between 25 ringgit and 2,000 ringgit a month.