Big Funds You’ve Never Heard Of – Part IV

As part of my ongoing series entitled ‘big funds you’ve never heard of’, I’d like to draw your attention to yet another big fund that you’ve never heard of. Ready? OK let’s start with a few hints to see if you can name it:

• As of March 31, 2012, this fund had $26 billion in assets under management.
• The mystery fund was created by the Malaysian Government to professionalize the management of the country’s pensions.
• In 2007, the new fund absorbed all of the powers, functions, activities, assets and liabilities of the old "Pension Trust Fund.

Can you name the fund? No?

The mystery fund is none other than Kumpulan Wang Persaraan (or “KWAP” for short). And I think you’ll agree that $26 billion qualifies this fund for my ‘BFYNHO’ series. Anyway, KWAP has two primary functions:

1. It administers and facilitates all the pension contributions; and
2. It manages and invests all the national pension assets to meet projected liabilities.

Let’s dig into number two for a second. In terms of investing, the fund’s stated objective is as follows:

“KWAP targets to achieve a nominal risk adjusted return of 8% per annum over a five (5) year rolling period.”

That’s actually quite high. And it’s made all the more challenging by the fact that the fund’s strategic asset allocation seems to weight fixed income assets heavily. So is it set up for failure?

Perhaps not, as the fund is rapidly professionalizing its operations and capabilities. If you read its 2010 annual report, you’ll be astounded at all of the good organizational work this pension fund has done. (In fact, I’d wager that most US pension funds would read KWAP’s annual report with great envy.) Moreover, the fund has been diversifying its investing as of late, adding overseas investments in equities, fixed income and even property. In addition, while the fund is largely a ‘direct investor’, it has been allocating a greater proportion of assets to external fund managers.

Anyway, make a note of KWAP – it will be an increasingly big player in financial markets in the years ahead!