Khazanah’s losses should be looked in total perspective


The UBS Group AG investment losses by Khazanah Nasional Bhd was actually RM1.7 billion and not RM3 billion, and such provision was part of the investment risks taken by any sovereign wealth funds (SWFs), said Tan Sri Azman Mokhtar (picture).

The former Khazanah MD, who led the state-owned strategic investment fund for 170 months, said the fund had made the provision of the losses according to accounting standards, despite reaching 97% provisioning or RM3.6 billion total investments.

“Through diligent recovery work, more than half, or 53.5% of the value of the investments or RM1.9 billion, were recovered. An internal review by independent board members with inputs from KPMG found that the case was clear of wrongdoing, and investment processes and board approvals were complied with,” said Azman in a five-page personal letter to colleagues and friends sighted by The Malaysian Reserve.

The Aug 2-dated letter came two days after he left the government-owned fund, which he headed since 2004.

He also said a significant factor in the losses resulted from the negligence and breach of the shareholders agreement by the fund managers, Olivant Advisers Ltd, that had admitted to and assumed responsibility.

“As part and parcel of investment operations, which are always subjected to investment risks, which in this case many SWFs suffered much larger losses than we did on investments in global banking stocks,” Azman said in the letter.

Earlier news reports suggested that Khazanah suffered RM3 billion losses from the UBS deal.

But Azman who was appointed to lead Khazanah at the age of 43, the youngest at the fund or any government-linked investment companies (GLICs) at that time, said such losses should also be viewed against the overall portfolio performance where Khazanah had registered more than RM82 billion of net gains from 2008 to 2017.

He said Khazanah’s total gains over the period is roughly RM100 billion with the top 10 gainers making up some RM92 billion, while the 10 largest losses accounted for about RM19 billion.

The main losses are Malaysian Airline System Bhd/ Malaysia Airlines Bhd at RM8.4 billion, Silterra Malaysia Sdn Bhd (RM5.5 billion) and Olivant (RM1.7 billion).

“In investments terms, it means our gains has outnumbered our losses by a factor of 5:1. In footballing terms, it’s like winning a game 5-1!,” said Azman, who is a staunch supporter of English Premier League football team Tottenham Hotspur.

He also highlighted Zivame, India’s online e-commerce lingerie company which made “startling headlines and good copy”.

“We also know that India is a market of more than billion consumers, half of them women, with rising incomes and even faster rising internet and mobile penetration, a male-dominated physical retail sector and, hence, a generally bad retail experience for women looking to buy undergarments.

“We invested some US$19 million (about RM80 million) for a 22% stake and last December, we decided to prudentially provide in full in our 2017 accounts as a conservative measure as we sometimes do for technology investments,” he said.

Azman said Zivame had recently delivered its best quarterly result.

“We remain quietly confident that we will be able, over the medium term, to recover all or almost all of what we have provided for, InsyaAllah.”

Azman said there is a need for a proper sense of perspective in evaluating the investments as there was no wrongdoing or recklessness on the part of these — and other such investments.

“It is a given that an honest and proper investment strategy will always generate some losses.”

He expressed his deep gratitude for the opportunity to helm Khazanah and considered the 14 years and two months at the fund as “not bad innings”.

He also highlighted his message to his Malay College Kuala Kangsar classmates that had gone viral.

Azman also recalled his 42-minute meeting with Tun Dr Mahathir Mohamad, which he described as a good and respectful meeting.

He said Dr Mahathir had asked him to write to him on how Khazanah can help the government reduce the country’s debt and what is his next career move.

“I asked his permission to brief to ‘clear the air’ about the many bad and unfair things some groups are saying and I am glad, Alhamdullilah, he gave me the space and was attentive and I think I registered that,” he said.

He also asked his staff to support Dr Mahathir’s government despite the allegations made by some quarters.