KWAP reviewing investment criteria to put more money into local property sector

PETALING JAYA: The country's second largest pension fund Kumpulan Wang Persaraan (KWAP) or the Retirement Fund Inc, which expects to grow its fund size to RM200 billion in five years despite the low interest environment, is looking to revise its minimum return requirement for property investments to 4% from 5% in an effort to deploy more funds locally.
It is envisaged that approval from its board for such a revision will come by the end of the year. KWAP has a minimum threshold only for investments in property.
"What is more important is to relook our investment criteria because ultimately the landscape has changed, (this is) so we can deploy more money into the real estate market locally, " its CEO Datuk Wan Kamaruzaman Wan Ahmad (pix) told SunBiz in an interview recently.
To date the pension fund owns only one building locally, the 39-storey Integra Tower, Kuala Lumpur, acquired at RM1.065 billion in March 2015. Its other properties in the country are in the form of development land, which KWAP will look to develop through joint ventures with property players. Its latest acquisition was the 5,048 sq m land at Persiaran Stonor, Kuala Lumpur, acquired at RM140 million from the government earlier this year. The pension fund has nine other properties in the UK and Australia.
A testament to its focus on the local property scene is that it is very close to signing a RM530 million deal for a tower in Kuala Lumpur's Golden Triangle area from a foreign fund. "It is one of the few remaining assets going at a rate of return of 6%, it's more than 6% actually," Kamaruzaman said.
KWAP's review of its investment criteria is an acquiescence to what he calls the new norm of "longer for lower investment returns" climate.
"Honestly, even before Brexit (the UK's impending exit from the European Union), it is very difficult to get the kind of returns expected from us. If you look everywhere, returns are in the low single digits," Kamaruzaman explained.
In such an environment, he said, KWAP is not reticent, but instead believes that it is a matter of tweaking investment strategies and looking at new markets that match its risk profile.
For example, the close to zero and even sub-zero yields in the European bond market makes the asset class an unattractive one for the fund which invests more than 52% of its funds into the local and foreign fixed income market.
However, Kamaruzaman said, they see opportunities in the equity and property markets overseas. He explained that the current environment will mean that the fund has to dig deeper into its research capabilities to identify the best investments.
However, the pension fund is eyeing property investments in the US and Europe, too.
"I think for KWAP we are new in the (property) game locally. Somehow or other, we started in the UK and Australia. Normally you start locally then you move (overseas), but somehow or rather KWAP historically has been that way," Kamaruzaman said, explaining that a mature market such as London will take the fund as short as two months to close a deal. In Malaysia, however, a financial year can go by before a deal is signed.