Malaysian sovereign wealth fund Khazanah attained a MYR1.6 billion (US$360 million) operational profit in 2022, but its net asset value fell 5% to MYR81 billion due to global economic headwinds.

While profitability has improved, the fund has failed to return to pre-Covid levels, despite ongoing restructuring and cuts in debt. In 2020, it reported a dismal performance with annual profits slumping by 61% to MYR2.9 billion (US$715 million) as its domestic assets – comprising two-thirds of its portfolio – faced the impact of the economic thrashing in the wake of the pandemic. In 2021, Khazanah’s profit slumped further to MYR670 million due to the continued impact of financial assistance to airline and tourism companies.

Yet, Khazanah also benefitted from the slashing of dividends to the government. In 2012-19, transfers to the government averaged around MYR970 million per annum, but in 2020 and 2021 it hiked the annual dividend to MYR2 billion – even as the state-owned investor was faced portfolio companies experiencing major difficulties. In 2022, however, dividends were reduced to MYR500 million (US$112 million) and altogether cumulative dividends since 2004 amounted to MYR17.1 billion (US$3.8 billion).

A reduction in payments to the government freed up capital for investment. In 2022, investments (MYR6.6 billion, US$1.5 billion) outstripped divestments (MYR2.5 billion, US$560 million) for the second year in succession. The fund is forecasting another year of economic challenges that are heightened by interest rate rises to combat inflation and geopolitical tensions.

The investment portfolio, where commercial assets are concentrated, registered a net asset value return of -5.7% in 2022, leading to a 2.2% four-year rolling return – well below the target of CPI+3%. Public markets dragged down the performance with Malaysian equities (55.9% of the portfolio) reporting an annual return of -4.2% and global equities (13.4% of investment assets) returning -16.3%. Contributing 8% of the investment portfolio, real assets proved to be a hedge against volatility with a return of 23.5%. Altogether, the investment portfolio notched up a profit of MYR1.6 billion (US$360 million) – well above the MYR670 million (US$150 million) reported in 2021.

Other portfolios under Khazanah’s management include: Dana Impak to oversee impact investment supporting socioeconomic progress in Malaysia; developmental assets to deliver long-term economic impact; special situations such as Malaysia Airlines that require a turnaround from a severely challenging economic environment; and the Yayasan Hasanah foundation supporting a range of impact-based initiatives.

Dana Impak is allocated MYR6 billion over 2021-26 to invest in increasing Malaysia’s economic competitiveness and build national resilience. In 2022, MYR500 million (US$112 million) of Dana Impak projects were identified to deliver socioeconomic impact. The fund launched the Future Malaysia Program, an initiative under Dana Impak, to support local startups and venture capital as well as key areas including agrifoods and workforce digital upskilling.

Malaysia Airlines proved to be a ball-and-chain for the fund as lockdowns hit global travel and disrupted supply chains – and while the hike in global energy prices will boost Malaysia’s upstream sector, aviation margins will be further squeezed by a combination of rising costs and sluggish demand. Nevertheless, it is making good progress towards regaining the financial momentum it lost due to the pandemic, leading to a focus on fleet replacement – and potentially prospects that are brighter than before the pandemic due to the overhaul of its cost structure and debt terms.

Related funds Khazanah
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